PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT This memorandum is protected by the attorney-client privilege and the work product doctrine. It is intended solely for the use of the attorneys and personnel of Calderwood & Harkness LLP and should not be disclosed to any third party without the prior written consent of the undersigned.
CALDERWOOD & HARKNESS LLP FUNDS & ASSET MANAGEMENT GROUP INTERNAL STRATEGY MEMORANDUM
October 6, 2025
TO: Nicholas Stern, Responsible Partner, Funds & Asset Management
FROM: Owen Fischer, Lead Associate, Funds & Asset Management
RE: Pinnacle Venture Fund II LP — Side Letter Negotiation Strategy and Most Favored Nation Election Framework
CC: Graham Sutherland (Billing Partner); Stephen Adler (Working Associate)
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I. EXECUTIVE SUMMARY
The purpose of this memorandum is to analyze the structuring of the most favored nation ("MFN") election framework and to develop a comprehensive, LP-by-LP negotiation strategy for the three anchor investor side letters in connection with Pinnacle Venture Fund II LP (the "Fund"), a Delaware limited partnership managed by its general partner, Pinnacle Venture Capital Management LLC (the "GP"). This memorandum is prepared to inform internal strategy discussions and to guide the drafting and negotiation of the side letter agreements anticipated to be delivered to counterparty counsel on or about October 20, 2025.
The Fund is targeting an aggregate capital raise of $600,000,000 (with a hard cap of $750,000,000) and will focus on early-stage and growth-stage venture capital investments in the enterprise software and software-as-a-service ("SaaS") sectors. The GP's principals, Rajesh Mehta and Claire Dubois, have established a strong track record through Pinnacle Venture Fund I LP (2021 vintage, $350 million), which has generated a net internal rate of return ("IRR") of 24.3% and a net total value to paid-in multiple ("TVPI") of 1.58x as of June 30, 2025. The successor fund is well-positioned in the market, and the GP has attracted significant interest from institutional limited partners seeking exposure to the enterprise software sector.
Three anchor limited partners have made preliminary commitments representing aggregate capital commitments of $165,000,000, or approximately 27.5% of the target fund size:
• Cascadia Public Employees' Retirement System ("CPERS"): $75,000,000 commitment (12.5% of target);
• Northstar Endowment Partners LLC ("NEP"): $50,000,000 commitment (8.33% of target); and
• Brindoval Family Office Holdings LP ("Brindoval"): $40,000,000 commitment (6.67% of target).
Each of these anchor investors will execute a separate side letter agreement that supplements the Amended and Restated Limited Partnership Agreement of Pinnacle Venture Fund II LP (the "LPA"), which is expected to be dated as of the First Close on January 15, 2026. The side letters will grant various economic, governance, informational, and operational accommodations tailored to the legal status, investment policy requirements, and negotiating priorities of each anchor LP.
The key timeline milestones are as follows: initial drafts of the three anchor side letters are targeted for distribution to counterparty counsel by October 20, 2025; the negotiation period is expected to extend through December 20, 2025 (with two to three rounds of mark-ups anticipated per side letter); the First Close is targeted for January 15, 2026; and the Final Close deadline is July 15, 2026. The MFN Side Letter Compilation will be delivered to all MFN-eligible limited partners within fifteen (15) business days following the Final Close.
Our central recommendation is to structure the MFN framework with robust "Excluded Provisions" carve-outs designed to limit the GP's economic and operational exposure from subsequent LP elections, while providing sufficient MFN coverage to satisfy the institutional expectations of sophisticated anchor investors. Specifically, we recommend defining five categories of Excluded Provisions (governmental plan regulatory requirements, ERISA representations, advisory committee seats, portfolio company board observer rights, and a catch-all for LP-specific legal/regulatory/tax provisions) while permitting MFN elections for economic terms (management fee reductions, co-investment terms, fee netting) and information/notification rights.
This memorandum addresses the following topics in detail: (a) the structural design of the MFN framework, including eligibility thresholds, election procedures, and operative mechanics; (b) the categorization and rationale for Excluded Provisions; (c) LP-specific negotiation considerations, including anticipated positions of counterparty counsel; and (d) recommended provision-by-provision treatment, presented both in narrative analysis and in a summary classification table.
II. BACKGROUND — FUND OVERVIEW AND ECONOMICS
A. Fund Structure and Terms
The Fund is organized as Pinnacle Venture Fund II LP, a Delaware limited partnership. The Certificate of Limited Partnership was filed with the Delaware Secretary of State on August 12, 2025 (File No. 7924813). The Fund's general partner is Pinnacle Venture Capital Management LLC, a Delaware limited liability company controlled by its Co-Founders and Managing Partners, Rajesh Mehta and Claire Dubois. The GP is a registered investment adviser with the U.S. Securities and Exchange Commission under the Investment Advisers Act of 1940, as amended (SEC File No. 801-XXXXX — to be confirmed with the GP prior to finalizing the side letter drafts).
The Fund will rely on the exemption from registration under the Investment Company Act of 1940, as amended, pursuant to either Section 3(c)(1) (limiting the Fund to no more than 100 beneficial owners) or Section 3(c)(7) (limiting the Fund to "qualified purchasers" as defined in Section 2(a)(51) of the Investment Company Act). The determination of which exemption will be relied upon will depend on the composition and number of investors admitted through the Final Close. Given the target fund size and the anticipated investor base, we expect the Fund to rely primarily on Section 3(c)(7).
The Fund's registered agent in Delaware is Capitol Registered Agents Inc., located at 1209 Orange Street, Wilmington, Delaware 19801. The Fund's principal office and headquarters are located at 2400 Sand Hill Road, Suite 320, Menlo Park, California 94025.
The Fund's investment strategy is focused on early-stage and growth-stage venture capital investments in the enterprise software and SaaS sectors. This represents a continuation and expansion of the investment strategy successfully employed in the predecessor fund. Pinnacle Venture Fund I LP (the "Predecessor Fund") is a 2021-vintage fund with total commitments of $350,000,000. As of June 30, 2025, the Predecessor Fund has generated a net IRR of 24.3% and a net TVPI of 1.58x, positioning it in the upper quartile for venture capital funds of its vintage. The strong performance of the Predecessor Fund is a significant driver of LP interest in the current fundraise and provides meaningful leverage in side letter negotiations.
B. Fund Economics
The principal economic terms of the Fund, as set forth in the LPA, are summarized below:
Target Fund Size and Hard Cap. The Fund's target aggregate capital commitments are $600,000,000. The LPA provides for a hard cap of $750,000,000, above which no additional commitments may be accepted without the consent of a majority-in-interest of the existing limited partners. The $150,000,000 buffer between the target and the hard cap provides meaningful flexibility for the GP to accommodate additional investor interest, particularly from institutional investors who may increase their commitments following the First Close.
Management Fee. The management fee is 2.0% per annum on committed capital during the five-year investment period (January 15, 2026 through January 15, 2031). Following the expiration of the investment period, the management fee transitions to 2.0% per annum calculated on invested capital (i.e., the aggregate amount of capital contributions that have been invested in portfolio companies and not yet returned to the limited partners through realizations or write-downs). This step-down from committed to invested capital is consistent with market practice for venture capital funds and results in a natural reduction in management fee revenue as the Fund begins to realize investments in its later years.
Carried Interest. The GP is entitled to a carried interest of 20% of net profits over an 8% preferred return (compounded annually). The LPA provides for a 100% GP catch-up to a 20/80 split once the preferred return has been fully distributed. Thereafter, all distributions are split 80% to the limited partners and 20% to the GP. The carried interest structure is standard for venture capital funds and is not a point of significant negotiation with the anchor LPs.
Fund Term. The Fund has a term of ten (10) years from the First Close, with a scheduled termination date of January 15, 2036. The LPA provides the GP with discretion to extend the term for up to two (2) additional one-year periods (i.e., through January 15, 2037, and if further extended, through January 15, 2038), subject to the GP's good faith determination that such extensions are necessary or desirable to facilitate the orderly liquidation of remaining portfolio investments.
Placement Agent. The GP has engaged Greystone Capital Advisors LLC ("Greystone") as placement agent for the fundraise. The primary contact at Greystone is Thomas Kessler, Managing Director. Greystone is entitled to a placement fee of 1.0% on commitments raised through introductions facilitated by Greystone. Importantly, the three anchor LPs are excluded from the placement fee arrangement, as each represents a direct GP relationship that predates the Greystone engagement. This exclusion avoids approximately $1,650,000 in placement fees that would otherwise be payable on the $165,000,000 in anchor commitments.
C. Anchor LP Commitment Summary
The following table summarizes the commitment amounts, percentage of target fund size, and negotiated management fee rates for each of the three anchor limited partners:
The remaining commitments needed to reach the target fund size of $600,000,000 total $435,000,000. Based on the GP's current pipeline and Greystone's placement efforts, the GP expects to secure an additional $250,000,000 to $350,000,000 in commitments from institutional investors (pension funds, endowments, foundations, fund-of-funds, and insurance company general accounts) and $85,000,000 to $185,000,000 from family offices and high-net-worth investors, with a Final Close target of July 15, 2026.
D. Annual Management Fee Impact of Anchor discounts
It is important to quantify the economic impact of the management fee discounts negotiated with the anchor LPs, both in isolation and when the potential for MFN elections by subsequent investors is taken into account.
Baseline. At the standard management fee rate of 2.0% on committed capital, the annual management fee on the full target fund size of $600,000,000 would be $12,000,000 per year during the investment period.
Anchor LP Fees (Discounted):
• CPERS: $75,000,000 × 1.75% = $1,312,500 per year
• NEP: $50,000,000 × 1.85% = $925,000 per year
• Brindoval: $40,000,000 × 2.00% = $800,000 per year
Remaining LP Fees (Standard):
• Remaining commitments: $435,000,000 × 2.00% = $8,700,000 per year
Total Adjusted Annual Management Fee: $1,312,500 + $925,000 + $800,000 + $8,700,000 = $11,737,500 per year
Annual Fee Reduction from Anchor discounts Alone: $12,000,000 − $11,737,500 = $262,500 per year
While this reduction is modest in the context of a $12,000,000 annual fee stream (approximately 2.2%), the more significant concern is the amplification effect of MFN elections. If subsequent LPs exercise their MFN election rights to adopt the most favorable fee rate (the CPERS rate of 1.75%), the annual fee reduction could increase substantially. As discussed in detail in Section VI below, preliminary estimates suggest that the annual management fee could decrease by an additional $544,000 to $1,350,000 per year depending on the volume and pattern of MFN elections. Stephen Adler is preparing a detailed MFN Exposure Analysis memorandum (expected by October 13, 2025) that will model multiple scenarios and quantify the range of potential fee compression.
E. Key Service Providers
The Fund has engaged the following key service providers, each of which is relevant to the operational commitments that may be undertaken in the side letters:
Fund Administrator: Meridian Fund Services LLC. The Fund's administrator is Meridian Fund Services LLC, with Patricia Lam serving as the designated Relationship Manager. Meridian will be responsible for NAV calculations, capital call and distribution processing, investor reporting, and investor relations support. Several of the provisions under negotiation in the anchor side letters — including enhanced quarterly reporting with sector-level attribution (CPERS) and ILPA-aligned information rights (Brindoval) — will require coordination with Meridian and may increase the scope (and cost) of the administration engagement. We recommend confirming with Meridian, through Patricia Lam, the operational feasibility and incremental cost implications of enhanced reporting commitments before finalizing the side letter drafts.
Fund Auditor: Ashford & Whitmore LLP. The Fund's auditor is Ashford & Whitmore LLP, with Richard Noonan serving as the Engagement Partner. Ashford & Whitmore will perform the annual financial statement audit of the Fund. The auditor engagement is standard and is not directly implicated by the side letter negotiations, although certain side letter provisions (such as ILPA-aligned reporting) may reference audited financial statements and impose timing requirements for delivery of audit reports.
III. MOST FAVORED NATION ELECTION FRAMEWORK — STRUCTURAL DESIGN
A. Overview and Policy Rationale
The most favored nation clause is a standard feature in institutional fund side letters, particularly for anchor and early-closing investors. The MFN clause provides qualifying limited partners with the right to elect into more favorable terms that may be granted to other investors in the Fund, whether at the same closing or at subsequent closings. The purpose of the MFN clause is to protect early investors from economic disadvantage relative to later investors who may negotiate more favorable terms, and to provide a mechanism for equalizing the treatment of similarly situated limited partners.
The key design objective for the GP in structuring the MFN framework is to balance two competing considerations. On the one hand, institutional LPs expect MFN protection as a baseline element of any side letter negotiation, and the absence of an MFN clause (or the presence of an overly restrictive MFN clause) would raise significant concerns for sophisticated investors and their counsel. On the other hand, the GP needs to retain the ability to control economic exposure and preserve the flexibility to grant bespoke terms to specific categories of investors — particularly governmental plan LPs, endowment vehicles, and other investors with unique legal, regulatory, or tax characteristics — without those bespoke terms becoming universally available through MFN elections.
The MFN framework will be implemented as follows: each anchor side letter will include an MFN election right provision, and the same provision (or a substantively identical provision) will be included in the side letters of all subsequent LPs whose commitments meet or exceed the MFN eligibility threshold. Separately, the GP will prepare a template MFN Election Procedures Letter and MFN Election Form, which will be distributed as part of the side letter package following the Final Close. All side letters, the LPA, and the MFN framework documents will be governed by the laws of the State of Delaware.
B. MFN Eligibility Threshold
We recommend establishing the MFN eligibility threshold at a commitment amount of $25,000,000 or greater to the Fund. Only limited partners whose aggregate capital commitments (including any commitments made at subsequent closings) equal or exceed $25,000,000 will be entitled to exercise MFN election rights.
The rationale for the $25,000,000 threshold is as follows:
• Balances inclusivity and protection. All three anchor LPs exceed the threshold by a significant margin (CPERS at $75M, NEP at $50M, and Brindoval at $40M). The $25M threshold is low enough to encompass the full range of institutional investors that the GP expects to attract, while high enough to exclude smaller investors (including individual high-net-worth investors and smaller family offices) whose side letter terms are typically more limited in scope and who may cherry-pick favorable terms without having provided the commitment size that justified those terms in the first instance.
• Consistent with market practice. For venture capital funds in the $500M–$750M range, MFN eligibility thresholds typically range from $15,000,000 to $50,000,000. A threshold of $25,000,000 is squarely within the market range and should not provoke objection from institutional investors or their counsel.
• Manageable LP universe. At the target fund size of $600,000,000, a $25M threshold is likely to encompass approximately ten to fifteen institutional limited partners, which is a manageable number for purposes of the MFN Side Letter Compilation, the election process, and the subsequent administration of elected provisions.
• GP expectations regarding LP base. The GP has indicated that it expects the Fund's LP base to consist of approximately twenty to twenty-five limited partners, with the majority committing $25,000,000 or more. The $25M threshold thus captures the core institutional LP base while excluding a small number of smaller investors who may be admitted at later closings.
We recommend maintaining the $25,000,000 threshold as proposed. It aligns with the GP's fundraising strategy and provides a defensible basis for limiting the universe of MFN-eligible investors.
C. MFN Election Timeline and Procedures
The MFN election process will consist of two phases: (1) the preparation and delivery of the MFN Side Letter Compilation, and (2) the MFN Election Period during which eligible LPs submit their election forms.
1. MFN Side Letter Compilation
Following the Final Close of the Fund (targeted for July 15, 2026), the GP will prepare a redacted compilation of all side letter terms granted to any limited partner of the Fund (the "MFN Side Letter Compilation"). The compilation will be structured as a single reference document organized by provision category, and will be subject to the following parameters:
• Redaction of LP identities. The MFN Side Letter Compilation will be fully redacted to remove the names and identifying information of the limited partners who received each provision. This preserves the confidentiality of each LP's negotiated terms and prevents targeted MFN elections based on knowledge of a specific LP's side letter.
• Omission of Excluded Provisions. Provisions that fall within any of the five categories of Excluded Provisions (as defined in Section IV below) will be omitted entirely from the MFN Side Letter Compilation. Excluded Provisions will not be referenced, summarized, or otherwise disclosed in the compilation, and no limited partner may elect into an Excluded Provision through the MFN process.
• Delivery deadline. The GP will deliver the MFN Side Letter Compilation to all MFN-eligible limited partners within fifteen (15) business days following the Final Close. Assuming a Final Close date of July 15, 2026, and accounting for weekends and typical summer holidays, the practical deadline for delivery of the compilation is approximately August 5, 2026.
• Method of delivery. The compilation will be delivered by electronic transmission (email with PDF attachment) and, if requested, by overnight courier to the address specified in the limited partner's subscription agreement.
2. MFN Election Period
Each MFN-eligible limited partner will have a period of thirty (30) calendar days following delivery of the MFN Side Letter Compilation to submit its MFN elections (the "MFN Election Period"). The following procedures will apply:
• Election form. Each eligible LP wishing to exercise its MFN election right must complete and submit an MFN Election Form identifying the specific provisions it wishes to elect into, by reference to the section numbers in the MFN Side Letter Compilation. The MFN Election Form will be prepared as a template document and will be included in the side letter package.
• Irrevocability. Elections are irrevocable once submitted to the GP. A limited partner may not withdraw, modify, or supplement an MFN election after it has been received by the GP.
• Effective date. Elections are deemed effective as of the date of the GP's receipt of the completed MFN Election Form.
• Late elections. Late elections — i.e., MFN Election Forms received after the expiration of the thirty-day MFN Election Period — will not be accepted. The GP shall have no obligation to extend the MFN Election Period for any reason.
• No partial elections. A limited partner may elect into one or more provisions on a provision-by-provision basis. There is no requirement to elect into all MFN-eligible provisions or none; however, each elected provision must be adopted in its entirety (no partial adoption or modification of a provision).
The template MFN Election Procedures Letter and MFN Election Form will be prepared as separate documents in parallel with the side letter drafts. Stephen Adler will take the lead on preparing these templates, with review by Owen Fischer and Nicholas Stern.
D. Operative Mechanics
The operative effect of an MFN election is as follows:
Amendment of electing LP's side letter. Upon the GP's receipt of a valid and timely MFN Election Form, the electing LP's side letter is deemed automatically amended to incorporate the elected provisions, as though such provisions had been included in the electing LP's side letter as of its original execution date. No separate amendment agreement is required, although the GP may, at its discretion, prepare and circulate a confirmation letter reflecting the amended terms.
GP discretion regarding applicability. The GP retains discretion to determine whether a particular provision is "applicable" to the electing LP. This discretion is intended to address situations in which an MFN-eligible provision is, as drafted, specific to the legal, regulatory, or tax status of the LP to whom it was originally granted and would be inapplicable or meaningless if adopted by the electing LP. For example, a provision granting a fee reduction that is expressly conditioned on the LP's status as a tax-exempt organization may not be applicable to a taxable LP. The GP's determination of applicability must be made in good faith and on a reasonable basis. We anticipate that this discretion will be a point of negotiation with counterparty counsel, and we should be prepared to provide examples of circumstances in which the GP's discretion would appropriately be exercised.
Preservation of LP confidentiality. There is no requirement for the GP to notify the limited partner whose term was elected into by another LP. The confidentiality of each LP's identity and the specific terms of its side letter are preserved throughout the MFN process. The MFN Side Letter Compilation itself is delivered on a confidential basis and is subject to the confidentiality provisions of the LPA.
Prospective effect. MFN elections do not create retroactive economic adjustments. Elected provisions apply prospectively from the effective date of the election (i.e., the date of the GP's receipt of the MFN Election Form). For management fee provisions, this means that an elected fee reduction will apply to management fee calculations for periods following the election date, and the GP will not be required to refund or credit management fees previously collected at the standard rate.
IV. EXCLUDED PROVISIONS — CATEGORIES AND RATIONALE
A. Overview
"Excluded Provisions" are categories of side letter terms that are carved out from the MFN election process. No limited partner may elect into an Excluded Provision through the MFN framework, regardless of the LP's commitment size or MFN eligibility. Excluded Provisions are omitted entirely from the MFN Side Letter Compilation and are not disclosed to MFN-eligible LPs.
The definition of Excluded Provisions is one of the most critical structural decisions in the MFN framework. If the category is defined too narrowly, the GP faces significant economic and operational exposure as subsequent LPs elect into the most favorable terms granted to any investor. If the category is defined too broadly, institutional LPs (and their counsel) will resist the MFN clause as illusory — providing the form of MFN protection without substantive content. The appropriate balance depends on the specific terms being negotiated, the characteristics of the LP base, and market practice for comparable venture capital funds.
We recommend defining five categories of Excluded Provisions, each of which is supported by a clear policy rationale and is consistent with market practice for institutional venture capital funds. These categories are discussed in detail below.
B. Category 1: Provisions Required by Specific Legal or Regulatory Requirements of a Governmental Plan LP
The first category of Excluded Provisions covers any provision that is included in a side letter to satisfy the specific legal or regulatory requirements of a limited partner that is a governmental pension plan, governmental retirement system, or sovereign entity. This category is designed to capture provisions that are legally mandated for governmental investors and that have no economic value, relevance, or applicability to non-governmental limited partners.
The primary beneficiary of this exclusion is Cascadia Public Employees' Retirement System, which is a Washington State governmental pension plan that is tax-exempt under Internal Revenue Code Section 115. As a governmental entity, CPERS is subject to Washington State public records laws (the Washington Public Records Act, RCW 42.56), sunshine law requirements, and state-law mandated investment restrictions that do not apply to private institutional investors, endowments, or family offices. The side letter provisions granted to CPERS to address these requirements — including FOIA/public records protections, notice and consultation rights before disclosure of Fund information in response to public records requests, and redaction procedures for proprietary Fund information — are driven entirely by CPERS's governmental status and are not economic accommodations subject to competitive equalization through MFN elections.
The rationale for this exclusion is straightforward: non-governmental LPs (including NEP and Brindoval) have no exposure to public records laws and no basis to elect into protections that address governmental disclosure obligations. Including these provisions in the MFN Side Letter Compilation would serve no purpose and would add unnecessary length and complexity to the compilation document. We expect no significant pushback from counterparty counsel on this category.
C. Category 2: ERISA Representations and Waivers
The second category of Excluded Provisions covers representations that a limited partner is not subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or waivers of ERISA-related representations that may be included in the LPA.
The primary beneficiary of this exclusion is Northstar Endowment Partners LLC, which is an investment vehicle for the endowment of Veltrano University. As a university endowment, NEP is not an "employee benefit plan" within the meaning of ERISA Section 3(3), and is not subject to the fiduciary duty, prohibited transaction, or plan asset rules of ERISA. NEP's side letter will include a representation that it is not a "benefit plan investor" (as defined in 29 C.F.R. § 2510.3-101) and a waiver of any ERISA-related representations that may be included in the LPA.
The rationale for this exclusion is that ERISA status is a factual and legal characteristic of a specific LP. An ERISA representation or waiver is inherently LP-specific: it states a fact about the LP's legal status that cannot be adopted by a different LP whose ERISA status is different. If an ERISA-plan LP were to elect into a waiver of ERISA representations via MFN, the waiver would be factually incorrect and legally ineffective, potentially exposing the GP to regulatory risk. Excluding this category from MFN elections protects both the GP and the LP base from the consequences of inapplicable representations.
We note that CPERS is also not subject to ERISA by virtue of its status as a governmental plan (within the meaning of ERISA Section 3(32) and Internal Revenue Code Section 414(d)). However, CPERS's exclusion from the MFN framework is addressed primarily under Category 1 (governmental plan regulatory requirements), which provides a more specific and comprehensive basis for exclusion. There is no conflict between the two categories, as they are complementary.
D. Category 3: Advisory Committee Seats
The third category of Excluded Provisions covers the right to designate a representative to the Fund's advisory committee (also referred to as the LP Advisory Committee or "LPAC").
The primary beneficiary of this exclusion is Northstar Endowment Partners LLC, which has been granted a seat on the Fund's advisory committee through its side letter. We note, however, that CPERS is separately entitled to an advisory committee seat under the LPA itself, as a limited partner with a commitment of $50,000,000 or more. CPERS's advisory committee entitlement does not arise from the side letter and therefore does not create MFN exposure; however, this distinction should be noted clearly in the CPERS side letter to avoid any ambiguity.
The rationale for this exclusion is grounded in the GP's governance prerogatives. Advisory committee composition is determined by the GP based on a range of considerations, including the mix of LP types (pension funds, endowments, family offices), commitment sizes, industry expertise, geographic diversity, and overall governance needs. The advisory committee serves important functions, including reviewing and approving conflicts of interest, reviewing valuations, and providing input on key fund decisions. The GP must retain discretion over the size and composition of the committee, and allowing MFN elections into advisory committee seats would undermine that discretion by creating an open-ended entitlement for any MFN-eligible LP to claim a seat.
Market practice strongly supports the exclusion of advisory committee seats from MFN. In our experience, virtually all institutional fund side letters treat advisory committee designations as excluded from MFN, and this position is generally accepted by institutional LPs and their counsel without significant pushback. We do not anticipate that this category will be a point of contention in the negotiations.
E. Category 4: Portfolio Company Board Observer Rights
The fourth category of Excluded Provisions covers rights to designate a non-voting observer to the board of directors of one or more portfolio companies of the Fund.
None of the three anchor LPs has currently requested board observer rights, and no such rights are included in the proposed side letter terms. However, we recommend including this category proactively as an Excluded Provision to preserve flexibility in the event that a subsequent LP (e.g., a strategic investor with industry expertise in the enterprise software sector) is granted board observer rights as part of its side letter negotiation.
The rationale for this exclusion is that board observer seats are inherently limited in number, are subject to portfolio company consent, and carry significant governance and confidentiality implications. Portfolio companies — particularly early-stage and growth-stage companies — may object to the appointment of multiple board observers, and the GP's ability to grant observer seats is constrained by the terms of its investment agreements with portfolio companies. Allowing MFN elections into board observer rights could result in an unmanageable number of observer designations, creating practical and legal complications at the portfolio company level.
This is a forward-looking exclusion designed to protect the GP's flexibility, and we do not anticipate that it will be a point of negotiation with the anchor LPs or their counsel.
F. Category 5: Terms Specific to the Legal or Regulatory Status of the Requesting LP (GP Reasonable Determination)
The fifth and final category of Excluded Provisions is a catch-all provision covering any side letter term that the GP reasonably determines is specific to the legal, regulatory, or tax status of the limited partner to whom it was granted and is not applicable to the electing LP.
This category serves as a safety valve to accommodate the inevitable range of LP-specific terms that may be granted in future side letters without requiring the GP to amend the Excluded Provisions definition each time a new category of LP-specific term arises. The catch-all is particularly important in a fund with a diverse LP base that may include, among others:
• Non-U.S. limited partners with specific tax treaty entitlements (e.g., provisions regarding withholding tax reductions under applicable income tax treaties between the United States and the LP's home jurisdiction);
• Insurance company general accounts subject to state insurance regulatory capital requirements;
• State-chartered banks or savings institutions subject to regulatory limitations on investment authority;
• Sovereign wealth funds with diplomatic or sovereign immunity considerations; and
• Public pension plans from jurisdictions other than Washington State with their own unique disclosure and investment restriction requirements.
We recommend including a clear standard for the GP's exercise of discretion under this category — specifically, that the GP's determination must be "reasonable" — to provide a reviewable standard and to reduce the risk of disputes. We also recommend including a non-exclusive list of examples in the side letter provision itself (such as the examples listed above) to provide guidance to LPs and their counsel regarding the intended scope of this category.
The catch-all category is the most likely point of contention with counterparty counsel, particularly counsel for CPERS (Sandra Okafor, Whitfield & Gage LLP), who may argue that the catch-all is too broad and could be used to exclude economically significant terms from MFN. We should be prepared to defend the reasonableness standard and the non-exclusive examples as appropriate guardrails on the GP's discretion, and to emphasize that the GP's exercise of discretion under this category is limited to provisions that are genuinely LP-specific and would be inapplicable or meaningless if adopted by a different LP.
G. Provisions NOT Excluded (MFN-Eligible)
For completeness, and to ensure that the MFN framework is perceived as substantive rather than illusory, it is important to identify the categories of provisions that are MFN-eligible — i.e., that will be included in the MFN Side Letter Compilation and available for election by qualifying LPs. The following categories of provisions are MFN-eligible:
• Management fee reductions (rates and calculation methodology)
• Co-investment rights (including fee and carry terms applicable to co-investments)
• Excuse and opt-out rights (except to the extent they fall within an Excluded Provision category as LP-specific regulatory requirements)
• Enhanced reporting and information rights
• Key-person event notifications
• Transfer rights (subject to any LP-specific regulatory component that may be excluded under Category 5)
• Fee netting provisions (management fee offset against carried interest distributions)
• ILPA-aligned information rights
This is where the MFN framework creates the most significant economic and operational exposure for the GP. Management fee reductions, co-investment terms (particularly zero-fee/zero-carry terms), and fee netting provisions all directly reduce GP economics, and their inclusion in the MFN-eligible category means that subsequent LPs may elect into these terms at no additional cost to themselves. The analysis in Section VI below provides a preliminary overview of the potential economic impact of MFN elections on these provisions, and Stephen Adler's forthcoming MFN Exposure Analysis memorandum will model this impact in detail.
V. LP-BY-LP NEGOTIATION STRATEGY AND PROVISION-LEVEL ANALYSIS
A. Cascadia Public Employees' Retirement System (CPERS)
1. LP Profile
CPERS is one of the largest public pension systems in the Pacific Northwest and represents the Fund's largest anchor commitment. The key profile details are as follows:
• Full legal name: Cascadia Public Employees' Retirement System
• Entity type: Washington State governmental pension plan, tax-exempt under Internal Revenue Code Section 115
• Headquarters: 700 NE Capitol Way, Olympia, Washington 98501
• Chief Investment Officer: Martin Albrecht
• Commitment to the Fund: $75,000,000 (12.5% of the target fund size of $600,000,000)
• Total plan assets under management: Approximately $48 billion
• Outside counsel: Whitfield & Gage LLP, Portland, Oregon (Sandra Okafor, lead partner)
CPERS is a well-known and respected institutional investor in the venture capital asset class. Its participation in the Fund is expected to have a significant signaling effect for other institutional LPs, and the GP has identified CPERS as its most strategically important anchor investor. CPERS's side letter negotiation will set the tone for the broader fundraise, and the terms granted to CPERS will establish the high-water mark for management fee reductions and co-investment terms that subsequent LPs will seek to match through MFN elections.
Sandra Okafor of Whitfield & Gage LLP is experienced public pension fund counsel who has represented CPERS and other Pacific Northwest governmental plans in numerous fund investment transactions. We should anticipate detailed and informed comments on FOIA protections, excuse rights, fiduciary duty provisions, and the scope of Excluded Provisions in the MFN framework. Ms. Okafor is likely to push for a narrow definition of Excluded Provisions to maximize CPERS's own MFN election power (i.e., to ensure that CPERS can elect into favorable terms granted to subsequent LPs). This creates a strategic tension: CPERS benefits from a broad MFN-eligible category (which expands the universe of terms it can elect into) but also benefits from the exclusion of its own governmental plan provisions (which prevents non-governmental LPs from electing into terms designed for CPERS).
2. Key Requested Provisions and Recommended Treatment
(a) Management Fee Reduction — 1.75% During Investment Period (25 bps discount). Classification: MFN-Eligible.
CPERS has negotiated a management fee rate of 1.75% per annum on committed capital during the investment period, representing a 25-basis-point discount from the standard 2.0% rate. This is the deepest fee discount among the three anchor LPs and creates the most significant MFN exposure for the GP.
The fee reduction produces an annual management fee for CPERS of $1,312,500 (calculated as $75,000,000 × 1.75%), compared to $1,500,000 at the standard rate — a savings to CPERS of $187,500 per year, or $937,500 over the five-year investment period.
We recommend classifying this provision as MFN-eligible. Fee reductions are economic terms that cannot credibly be characterized as LP-specific regulatory requirements or as provisions specific to any particular LP's legal or tax status. Market practice universally treats management fee concessions as MFN-eligible, and any attempt to exclude fee reductions from MFN would be aggressively challenged by counterparty counsel and could undermine the credibility of the entire MFN framework.
The MFN exposure associated with this provision is significant. If all remaining LP commitments ($435,000,000) elected into the 1.75% rate, the annual management fee on those commitments would decrease from $8,700,000 (at 2.0%) to $7,612,500 (at 1.75%) — a reduction of $1,087,500 per year. In practice, not all subsequent LPs will be MFN-eligible (some will commit less than $25,000,000), and not all MFN-eligible LPs will elect into the fee reduction (some may prefer to negotiate their own fee arrangements). However, the risk of significant fee compression is real and should be modeled carefully.
Several mitigation strategies should be considered:
• Commitment-tiered fee schedule. Consider proposing a tiered fee structure in which the 1.75% rate is available only to LPs committing $75,000,000 or more, a 1.85% rate applies to LPs committing between $50,000,000 and $74,999,999, and the standard 2.0% rate applies to LPs committing less than $50,000,000. If adopted, this structure would limit the number of LPs eligible for the deepest discount and reduce the aggregate fee compression from MFN elections. However, CPERS may resist any provision that ties its fee rate to its commitment size for MFN purposes, as this could be perceived as diluting the value of the discount.
• Redacted compilation strategy. An alternative (and less confrontational) approach is to present the fee reduction in the MFN Side Letter Compilation without the commitment-size context that justified it. The compilation would disclose that a management fee rate of 1.75% was granted to an unidentified LP, but would not disclose the LP's commitment size. Subsequent LPs could elect into the 1.75% rate, but would do so without knowing whether their own commitment size justified the same discount. This approach provides less structural protection than a commitment-tiered schedule, but avoids the negotiation risk associated with tying fee rates to commitment sizes.
Recommendation to the GP: We recommend discussing with Rajesh Mehta and Claire Dubois the acceptable level of fee compression from MFN elections and whether the GP is willing to propose commitment-tiered fee schedules. This discussion should take place before the initial drafts are finalized, as the fee structure will affect the drafting of all three anchor side letters and the MFN framework itself.
(b) Excuse Rights — Tobacco and Firearms Investments. Recommended Classification: Excluded Provision (Category 5 — GP reasonable determination that this provision is specific to CPERS's status as a state governmental plan with investment policy restrictions).
CPERS has requested the right to be excused from participation in Fund investments in portfolio companies that derive a material portion of their revenues from the manufacture, distribution, or sale of tobacco products or firearms. This request is driven by the investment policy mandates of the State of Washington applicable to the Cascadia Public Employees' Retirement System, which prohibit or restrict the Plan's investment in certain industries on public policy grounds.
We recommend classifying this provision as an Excluded Provision under Category 5 on the basis that it is specific to CPERS's status as a state governmental pension plan operating under legislatively mandated investment policy restrictions. The excuse right is not an economic accommodation or a term of general applicability; it is a regulatory compliance measure that enables CPERS to participate in the Fund without violating its governing investment policies.
However, we anticipate potential pushback from Brindoval, which has separately requested competitive investment opt-out rights (discussed in Section V.C.2(a) below). Brindoval (or its counsel, Angela Ferris of Prescott & Langley LLP) may argue that if excuse rights are excluded from MFN for CPERS, they should also be excluded for Brindoval — or alternatively, that all excuse/opt-out rights should be MFN-eligible.
The critical distinction is that CPERS's excuse rights are driven by governmental investment policy mandates (a regulatory requirement), while Brindoval's opt-out rights are driven by business conflict (a commercial accommodation). We recommend drafting the CPERS excuse right with explicit reference to the governmental plan investment policy requirements that give rise to the request, in order to support the Excluded Provision classification and to distinguish it from Brindoval's opt-out request. The two provisions should be drafted under different headings and with different operative language to avoid conflation.
(c) Enhanced Quarterly Reporting with Sector-Level Attribution. Classification: MFN-Eligible.
CPERS has requested quarterly reports that include attribution of returns by sector — specifically, a breakdown of Fund performance by industry sub-segment within the enterprise software and SaaS sectors — beyond the standard quarterly investor letters provided to all limited partners. This enhanced reporting would provide CPERS's investment team with more granular data for portfolio monitoring, asset allocation analysis, and reporting to the CPERS Board of Trustees.
We recommend classifying this provision as MFN-eligible. Enhanced reporting is an information right that is not specific to CPERS's legal or regulatory status as a governmental plan. Any institutional LP would benefit from sector-level attribution, and there is no credible basis for excluding this provision from MFN.
However, the operational implications of this provision should be carefully evaluated before it is committed to in the side letter. Sector-level attribution will require additional data analysis and report preparation by Meridian Fund Services LLC (Patricia Lam). If subsequent LPs elect into the enhanced reporting provision via MFN, the volume of customized reporting will increase, potentially requiring additional resources from Meridian and increasing the Fund's administration costs.
Recommendation: We recommend confirming with Meridian (through Patricia Lam) that sector-level attribution is operationally feasible within the current administration engagement scope and budget. If enhanced reporting will increase administration costs, we recommend adding a provision in the side letter (and in the LPA, if necessary) that permits fund-level operational costs attributable to enhanced reporting to be charged as a Fund expense.
(d) FOIA/Public Records Protection Carve-Outs. Classification: Excluded Provision (Category 1 — provisions required by specific legal or regulatory requirements of a governmental plan LP).
CPERS has requested comprehensive protections against the disclosure of proprietary Fund information in response to requests made under the Washington Public Records Act (RCW 42.56) or similar federal or state freedom of information laws. The specific provisions requested include:
• A commitment by the GP to designate proprietary Fund information as "confidential" or "trade secret" under applicable exemptions to the Washington Public Records Act;
• A requirement that CPERS provide written notice to the GP within a specified period (recommend five (5) business days) before disclosing any Fund information in response to a public records request;
• Consultation rights, pursuant to which the GP may review and comment on proposed disclosures and request redactions of proprietary information prior to disclosure;
• Cooperation by the GP in seeking protective orders or exemptions from disclosure, at the GP's expense, in the event that CPERS receives a public records request that would require disclosure of Fund information that the GP considers highly sensitive.
These provisions are driven entirely by CPERS's status as a Washington State governmental entity subject to public records laws. Non-governmental LPs (including NEP and Brindoval) have no FOIA exposure and no basis to elect into these protections. We recommend clearly labeling this provision in the side letter (and in the MFN framework) as an Excluded Provision under Category 1, and omitting it entirely from the MFN Side Letter Compilation. We do not anticipate any pushback from the other anchor LPs or their counsel on this classification.
(e) Co-Investment Rights — No Management Fee or Carried Interest on Co-Investments. Classification: MFN-Eligible.
CPERS has requested the right to participate in co-investment opportunities alongside the Fund on a no-management-fee, no-carried-interest basis. This is a particularly favorable co-investment term. Standard market practice for venture capital funds ranges from reduced management fee and standard carried interest to no management fee with reduced carried interest; the zero-fee/zero-carry structure requested by CPERS represents the most LP-favorable end of the market range.
The co-investment provision would work as follows: when the GP identifies an investment opportunity that exceeds the Fund's targeted allocation or that the GP determines is suitable for co-investment, the GP would offer CPERS the opportunity to invest additional capital alongside the Fund on terms that do not include any management fee or carried interest payable to the GP. CPERS would pay its pro rata share of any transaction expenses but would otherwise invest on the same terms as the Fund.
The MFN exposure associated with this provision is significant. If subsequent LPs elect into CPERS's co-investment terms, the GP would forfeit management fee and carried interest on all co-investment capital allocated to those LPs. Depending on the volume of co-investment opportunities and the number of LPs electing into this provision, the aggregate economic impact could be substantial.
Recommendation: We recommend classifying this provision as MFN-eligible (it is an economic term that cannot credibly be excluded), but we recommend negotiating protective limits on the co-investment commitment, such as:
• A cap on co-investment allocation per LP (e.g., co-investment opportunities up to 50% of the LP's Fund commitment);
• Limiting zero-carry treatment to pro rata co-investments only (i.e., co-investments that are allocated on a pro rata basis among participating LPs, as opposed to direct co-investments in which a single LP makes a concentrated investment alongside the Fund); and
• A reservation of GP discretion to allocate co-investment opportunities among eligible LPs on the basis of factors including commitment size, speed of response, and strategic value.
(f) Most Favored Nation Election Right. CPERS will itself have an MFN election right, consistent with the framework described in Section III of this memorandum. CPERS's MFN election right would permit it to elect into any non-excluded provisions granted to subsequent LPs (e.g., if a subsequent LP receives a fee netting provision that CPERS did not negotiate, CPERS could elect into that provision during the MFN Election Period). We should ensure that the MFN provision in CPERS's side letter is consistent in all material respects with the MFN provisions in the NEP and Brindoval side letters.
B. Northstar Endowment Partners LLC (NEP)
1. LP Profile
NEP is an institutional-quality endowment vehicle with a well-established alternatives allocation program. The key profile details are as follows:
• Full legal name: Northstar Endowment Partners LLC
• Entity type: Delaware limited liability company; investment vehicle for the endowment of Veltrano University
• Headquarters: 1 University Square, Suite 1400, Cambridge, Massachusetts 02138
• Director of Private Investments: Helen Bancroft
• Commitment to the Fund: $50,000,000 (8.33% of the target fund size of $600,000,000)
• Endowment assets under management: Approximately $12.5 billion
• Outside counsel: Hollander McKee & Stone LLP, Boston, Massachusetts (David Tannenbaum, lead partner)
NEP's investment in the Fund is part of a broader venture capital allocation within the Veltrano University endowment portfolio. Helen Bancroft, the Director of Private Investments, has been the primary relationship contact with the GP and has indicated that NEP's side letter priorities include advisory committee representation, key-person protections, and transfer flexibility for affiliated endowment entities.
David Tannenbaum of Hollander McKee & Stone LLP is experienced endowment counsel with a practice focused on alternative investment fund documentation. We expect Mr. Tannenbaum's comments to focus on transfer rights flexibility (particularly the ability to transfer NEP's LP interest to affiliated entities of Veltrano University), key-person provisions, and advisory committee mechanics. Mr. Tannenbaum may push for broader transfer rights than we recommend granting (e.g., a right to transfer to any affiliated entity of Veltrano University, not just endowment vehicles), and we should be prepared to explain the MFN implications of granting overly broad transfer rights.
2. Key Requested Provisions and Recommended Treatment
(a) Management Fee Reduction — 1.85% During Investment Period (15 bps discount). Classification: MFN-Eligible.
NEP has negotiated a management fee rate of 1.85% per annum on committed capital during the investment period, representing a 15-basis-point discount from the standard 2.0% rate. This discount is less aggressive than CPERS's 25-basis-point discount and produces an annual management fee for NEP of $925,000 (calculated as $50,000,000 × 1.85%), compared to $1,000,000 at the standard rate — a savings to NEP of $75,000 per year.
From an MFN perspective, the NEP fee rate is largely superseded by the CPERS fee rate. Subsequent MFN-eligible LPs committing $25,000,000 or more will have the option to elect into either the 1.85% rate (NEP's rate) or the 1.75% rate (CPERS's rate). Rational actors will elect into the lower rate, rendering the 1.85% rate effectively moot from an MFN perspective. The CPERS fee rate is the binding constraint on fee compression, and the NEP fee rate does not add incremental MFN exposure beyond what is already created by the CPERS discount.
This creates an important strategic dynamic: the CPERS fee rate of 1.75% effectively sets the floor for all MFN elections on management fee rates. Once the CPERS rate is included in the MFN Side Letter Compilation, no MFN-eligible LP has an incentive to elect into the NEP rate of 1.85%, because the CPERS rate is more favorable. The GP should recognize that, from a practical standpoint, the CPERS fee discount determines the marginal MFN fee exposure, and the NEP discount is incremental only insofar as it provides an intermediate option that no rational LP would choose.
Recommendation: MFN-eligible. The lower risk profile of this provision (relative to the CPERS fee) does not warrant any special mitigation measures. The GP's MFN exposure modeling should focus on the CPERS rate as the relevant benchmark.
(b) Advisory Committee Seat. Classification: Excluded Provision (Category 3).
NEP has been granted a seat on the Fund's advisory committee pursuant to its side letter. The advisory committee will consist of representatives of selected limited partners and will meet at least annually (and more frequently as needed) to review and address conflicts of interest, review valuations, consider requests for GP consent on specified matters, and provide input on other governance matters.