Parallel (QP) funds overview
AngelList funds are, by default, set up as 3(c)(1) entities. These vehicles, depending on size, can only accommodate a certain number of investors:
- Funds under $12m in commitments: 249 LPs
- Funds over $12m in commitmens: 99 LPs
If you plan to bring in more LPs than the 3(c)(1) entity can accommodate, for an additional fee, AngelList can create a parallel (QP) fund.
By creating a QP fund on AngelList, QP investors are automatically moved to the 3(c)(7) ‘QP’ vehicle, freeing up space in your 3(c)(1) fund for non-QP accredited investors. The QP fund can accommodate up to 2,000 Qualified Purchasers, investing side by side with your main fund and using a nominee structure to ensure simple administration and a single entry on the portfolio company’s cap table.
Why set up parallel funds?
- Stay within 3(c)(1) limits: A 3(c)(1) fund can generally accept 99 investors (or up to 249 if it meets certain venture capital requirements). When you exceed that capacity, a parallel QP fund (3(c)(7)) can take additional investors who are QPs without diluting the main fund’s capacity.
- Offer access to all LP types: Non-QP accredited investors go into the 3(c)(1) fund; QPs go into the 3(c)(7) fund. Both funds maintain the same strategy and economics.
How parallel funds work
- Separate limited partnerships
- Main fund (3(c)(1)): For accredited, non-QP investors.
- Parallel (QP) fund (3(c)(7)): For Qualified Purchasers, up to 2,000.
- Shared terms & thesis: Both funds invest pro rata based on committed capital, ensuring alignment and matching economic terms.
- Nominee structure: AngelList has the Main Fund wire money on behalf of both vehicles. Each fund’s beneficial ownership is tracked separately, with the Main Fund acting as a nominee for the QP fund’s share of assets.
Benefits of the nominee structure
- Single wire, single cap table entry: Despite two funds investing, each portfolio company only sees one wire and one fund name on the cap table.
- No rebalancing required: Changing allocation ratios between funds doesn’t involve transferring securities at the portfolio company level.
- Same economic exposure: Whether an LP invests in the Main Fund or the QP Fund, they receive the same pro rata share of returns.
Example: Raising $10M from 275 LPs
- 75 Non-QP LPs ($2.5M) are placed in the Main Fund (3(c)(1)).
- 200 QP LPs ($7.5M) go to the Parallel QP Fund (3(c)(7)).
When the Main Fund wires money for an investment:
- 25% of the investment is allocated to the Main Fund.
- 75% is allocated to the Parallel QP Fund.
When the investment returns proceeds:
- 25% flows back to the Main Fund LPs.
- 75% goes to the Parallel Fund LPs, reflecting their beneficial ownership.
Key takeaway
A Parallel (QP) Fund is a great way to accept additional investors beyond 3(c)(1) limits, while still offering the same terms and thesis to all LPs. The nominee structure on AngelList simplifies administration, ensuring one cap table entry and a clear split of proceeds behind the scenes. If you have questions about setting up or managing Parallel Funds, our team is here to help.