PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE ATTORNEY WORK PRODUCT
MEMORANDUM
TO: Dr. Marcus Yeung, Co-Founder & Managing Partner, Cobalt Ventures LP Priya Dasgupta, Co-Founder & Managing Partner, Cobalt Ventures LP
FROM: Pamela Cross, Partner, Funds & Asset Management, Calderwood & Harkness LLP Theresa Kim, Associate, Funds & Asset Management, Calderwood & Harkness LLP
DATE: April 30, 2026
RE: Fund Structure Alternatives and Recommendations — Cobalt Life Sciences Opportunities Fund I, LP
C&H Matter No.: 1004-00002
Billing Code: 88103-CVC
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I. EXECUTIVE SUMMARY
The purpose of this memorandum is to present and evaluate the principal fund structuring alternatives available for Cobalt Life Sciences Opportunities Fund I, LP ("CLSO Fund I" or the "Fund"), the inaugural opportunistic life-sciences fund to be sponsored by Cobalt Ventures LP ("Cobalt" or the "Sponsor"). This memorandum analyzes the structural options in light of the Fund's anticipated investment strategy, target investor base, economic terms, regulatory requirements, and tax considerations, and provides our recommendations for the preferred fund architecture.
Recommendation. Based on our analysis, we recommend that the Fund be organized as a single-tier Delaware limited partnership as the primary fund vehicle, supplemented by ancillary structures — including alternative investment vehicle ("AIV") mechanics, a Delaware C-corporation blocker entity, and optional parallel fund or feeder arrangements — to be deployed on an as-needed basis for specific investor constituencies. This approach provides an institutional-quality structure that is consistent with market practice for life-sciences opportunistic funds at this scale, while preserving maximum flexibility to accommodate the tax, regulatory, and governance requirements of the Fund's diverse anticipated investor base.
The key parameters of the Fund are as follows:
• Target fund size: $750,000,000
• Hard cap: $1,000,000,000
• First close minimum: $250,000,000 (one-third of target)
• Target first close: November 15, 2026
• Target final close: May 15, 2027
This memorandum is being delivered concurrently with a separate Tax Structuring Memorandum prepared by Leonard Cross (Specialist Partner, Tax) of Calderwood & Harkness LLP, in coordination with Greystone Tax Advisors LLC (Kenneth Liu, Managing Director), which addresses UBTI and ECI planning, carried interest treatment under IRC §1061, state tax nexus considerations, and blocker entity modeling in greater detail. In addition, the regulatory analysis contained herein has been coordinated with Fielding & O'Hara PLLC (Brian Liddell, Partner – Investment Management), which is advising Cobalt on Investment Advisers Act of 1940 (the "Advisers Act") compliance, Form ADV preparation, and related regulatory matters.
This memorandum is organized as follows: Section II provides background on the Sponsor, the Fund's investment strategy, and the anticipated investor base. Section III summarizes the key fund economic terms that inform structural decisions. Section IV presents our analysis of six structural alternatives and our recommendations for each. Sections V through XI address the recommended entity hierarchy, general partner and management company structural considerations, ERISA and VCOC matters, regulatory considerations, banking and custody arrangements, the service provider framework, and governance structure. Section XII sets forth the proposed formation timeline and next steps. Section XIII provides our concluding recommendations.
II. BACKGROUND AND CONTEXT
A. Cobalt Ventures LP — Sponsor Overview
Cobalt Ventures LP was founded in 2018 by Dr. Marcus Yeung and Priya Dasgupta as a dedicated life-sciences investment platform focused on venture-stage and growth-stage biotechnology companies. Over the past eight years, the Sponsor has established a track record of disciplined capital deployment and strong returns across two prior vintage vehicles.
Dr. Marcus Yeung holds an MD/PhD from Stanford University and brings eighteen years of life-sciences investing experience to the firm. Prior to founding Cobalt, Dr. Yeung served as a Partner at Prumvane Biosciences, where he led investments in fourteen biotechnology companies, including three that completed initial public offerings and two that were acquired through trade-sale exits. Dr. Yeung's deep domain expertise in clinical-stage therapeutics and regulatory pathways is central to the Fund's investment strategy.
Priya Dasgupta holds an MBA from the Wharton School of the University of Pennsylvania and brings fifteen years of healthcare investing experience spanning venture capital, growth equity, and public markets. Prior to co-founding Cobalt, Ms. Dasgupta served as Vice President at Ridgeline Health Capital, where she was responsible for sourcing, evaluating, and managing healthcare investments across the capital structure. Ms. Dasgupta leads the firm's fundraising and investor relations functions and plays a key role in portfolio company governance.
The Sponsor is headquartered at 3400 Sand Hill Road, Suite 220, Menlo Park, California 94025. Cobalt Ventures LP is organized as a Delaware limited partnership (DE LP File No. 7824931; California Secretary of State File No. 202118412387; EIN: 83-2947561). The firm's registered agent in Delaware is Hollowell Technologies, 1209 Orange Street, Wilmington, Delaware 19801.
Cobalt currently manages approximately $420 million in assets under management across two prior vintage vehicles: Cobalt Ventures Fund A, LP and Cobalt Ventures Fund B, LP. The Sponsor's historical strategy has centered on single-fund venture investments in the range of $5 million to $25 million, targeting early- and growth-stage biotechnology companies. The launch of CLSO Fund I represents a significant evolution in the Sponsor's strategy, as discussed in Section II.B below.
In addition to the co-founders, Alan Whitford serves as Partner, Head of Research. Mr. Whitford holds a PhD in Molecular Biology from the Massachusetts Institute of Technology and previously served as Chief Scientific Officer at Meridian Therapeutics. He joined Cobalt in 2021 and plays a critical role in scientific diligence, portfolio company monitoring, and strategic advisory. Mr. Whitford will participate in the Fund's carried interest allocation as described in Section III.
B. Investment Strategy for CLSO Fund I
CLSO Fund I represents a material step-up in the Sponsor's investment strategy, transitioning from venture-stage investments with smaller check sizes to larger, concentrated positions in later-stage life-sciences companies. The Fund's investment strategy is defined by the following parameters:
Sector Focus. The Fund will target investments in three primary sub-sectors within life sciences:
(i) Clinical-stage therapeutics — companies with drug candidates in Phase II clinical trials or later, where meaningful clinical data exists or is expected within the Fund's investment horizon and where regulatory pathways to approval are identifiable;
(ii) Medical devices — companies pursuing FDA 510(k) clearance or Premarket Approval (PMA) pathways, with a preference for devices addressing large, underserved markets with demonstrable clinical utility; and
(iii) Platform biotechnology — companies developing enabling technologies in gene editing, synthetic biology, and AI-enabled drug discovery, where the platform has the potential to generate multiple product candidates or licensing opportunities.
Geographic Focus. The Fund will invest primarily in North American companies. Up to twenty-five percent (25%) of aggregate commitments may be deployed in companies headquartered or principally operating in Western Europe and Israel, reflecting the maturity and depth of the life-sciences ecosystems in those regions. This geographic allocation is an investment-level parameter and does not, standing alone, necessitate an offshore fund vehicle, although it may inform AIV considerations for specific transactions (for example, investments requiring a local holding entity in a European jurisdiction).
Check Size. The Fund targets initial investments in the range of $30,000,000 to $100,000,000 per portfolio company, with capital reserved for follow-on investments in existing portfolio companies. This represents a significant increase from the Sponsor's historical check sizes of $5 million to $25 million, consistent with the Fund's focus on later-stage, larger-capitalization opportunities.
Control and Governance. The Fund will target board seats or contractual governance rights (such as board observer seats, information rights, protective provisions, and consent rights) in one hundred percent (100%) of its portfolio companies. This governance focus is not only central to the Fund's value-creation strategy but is also essential for the Fund's intended qualification as a "venture capital operating company" under the Department of Labor's plan asset regulations, as discussed in Section VII below.
Concentration and Reserves. The Fund's Limited Partnership Agreement (the "LPA") will include a concentration limit of fifteen percent (15%) of aggregate commitments per investment, and the Fund will maintain a recycling allowance of fifteen percent (15%) of aggregate commitments to permit redeployment of certain realized proceeds during the investment period.
C. Anticipated Investor Base
The diversity and composition of the Fund's anticipated investor base is a primary driver of the structural analysis in this memorandum. Cobalt has identified three prospective anchor or seed investors whose investment parameters, tax status, and regulatory requirements inform the structural flexibility that the Fund must accommodate:
1. Ironwood Public Employees' Retirement System ("Ironwood PERS")
Ironwood PERS is a state government pension fund organized under the laws of the State of Oregon, with approximately $62 billion in assets under management. The anticipated commitment from Ironwood PERS is $100,000,000. The primary contact is Helen Tsao, Director of Private Markets, whose offices are located at 900 Capitol Way NE, Suite 400, Salem, Oregon 97301.
Ironwood PERS's investment committee approval is tentatively scheduled for June 2026. Ms. Tsao has communicated the following key requirements for Ironwood PERS's investment in the Fund:
• Most Favored Nation ("MFN") side letter — Ironwood PERS expects to receive an MFN provision entitling it to elect any material economic or governance terms granted to other limited partners in side letters, subject to customary carve-outs.
• Advisory committee seat — Ironwood PERS has specifically requested a seat on the Fund's LP Advisory Committee (the "LPAC").
• Co-investment rights at no fee/no carry — Ironwood PERS expects the right to participate in co-investment opportunities alongside the Fund on a no-management-fee, no-carried-interest basis.
• Annual in-person reporting — Ironwood PERS requires that the Sponsor provide an annual in-person report to Ironwood PERS's investment staff, either in Salem, Oregon or at a mutually agreed location.
As a state government pension fund, Ironwood PERS is generally exempt from federal income tax and is typically not subject to unrelated business taxable income ("UBTI") in most investment scenarios. However, UBTI treatment should be confirmed for debt-financed income scenarios, as discussed in the Tax Structuring Memorandum. Ironwood PERS's status as a governmental plan means it is generally not subject to ERISA, although it may be treated as a "benefit plan investor" for purposes of the Department of Labor's plan asset regulations under certain analyses. The pay-to-play implications of Ironwood PERS's status as a state pension fund are discussed in Section VIII.C below.
2. Northgate Endowment Management LLC ("Northgate")
Northgate Endowment Management LLC is the investment management arm of a major university endowment with approximately $8.5 billion in assets under management. Northgate is organized as a Delaware limited liability company. The anticipated commitment is $50,000,000. The primary contact is David Park, Senior Portfolio Manager – Life Sciences Allocation, whose offices are located at 77 Brattle Street, 4th Floor, Cambridge, Massachusetts 02138.
Northgate has communicated the following key requirements:
• ERISA-compliant carve-out structure — Northgate has requested a structure that ensures compliance with ERISA to the extent applicable. This request likely reflects concerns about the university endowment's potential status as a benefit plan investor and the need to ensure that the Fund qualifies for an exception from plan asset treatment (such as the VCOC exception), or alternatively, that Northgate's participation is structured through a separate vehicle that independently satisfies ERISA requirements.
• Co-investment rights — Northgate expects the right to participate in co-investment opportunities alongside the Fund.
• Annual detailed portfolio analytics — Northgate requires comprehensive annual portfolio-level reporting, including detailed valuation methodologies, attribution analysis, and clinical milestone tracking for each portfolio company.
As a university endowment, Northgate is likely tax-exempt under IRC §501(c)(3), which means it may be subject to UBTI on certain categories of investment income, including debt-financed income and income from the conduct of an unrelated trade or business. Northgate may therefore wish to participate in certain investments through a blocker entity, as discussed in Section IV.E below.
3. Pinnacle Insurance Group, Inc. ("Pinnacle")
Pinnacle Insurance Group, Inc. is a life and annuity insurance company organized under the laws of the State of Connecticut, with a general account of approximately $28 billion. The anticipated commitment is $75,000,000. The primary contact is Rachel Stein, Senior Vice President – Alternative Investments, whose offices are located at 500 Asylum Avenue, Hartford, Connecticut 06103.
Pinnacle has communicated the following key requirements:
• Insurance regulatory compliance provisions — Pinnacle requires that the Fund's structure and documentation comply with applicable Connecticut insurance regulations governing permissible investments by insurers, including limitations on asset concentration, investment-grade and below-investment-grade allocations, and derivative instrument restrictions. Pinnacle may also require specific reporting formats for insurance regulatory filings.
• blocker entity for certain tax-exempt structures — Pinnacle has specifically requested access to a blocker entity for investments generating income that creates adverse tax, reserve, or risk-based capital treatment under Connecticut insurance accounting rules.
• Quarterly NAV statements — Pinnacle requires quarterly net asset value statements for financial reporting and regulatory compliance purposes.
As a taxable insurance company, Pinnacle's tax considerations differ from those of tax-exempt investors, but Pinnacle may nonetheless prefer blocker participation for investments generating debt-financed income, certain operating company income, or income with adverse insurance regulatory accounting characteristics. The blocker entity analysis is addressed in Section IV.E.
4. Aggregate Anticipated Anchor Commitments and Remaining Capital to Raise
The aggregate anticipated commitments from the three identified anchor investors total $225,000,000 ($100 million from Ironwood PERS, $50 million from Northgate, and $75 million from Pinnacle). The General Partner's commitment will be a minimum of two percent (2%) of aggregate commitments, which at the target fund size of $750 million equals $15,000,000. Accordingly, the remaining capital to be raised from additional institutional investors to reach the target fund size is approximately $510,000,000 ($750 million minus $225 million minus $15 million).
5. Placement Agent
Cobalt has engaged sagebrush Capital Partners LLC (Jonathan Mercer, Managing Director) as the exclusive global placement agent for the Fund. Sagebrush is a registered broker-dealer with the Securities and Exchange Commission (CRD No. 298714). The placement agent engagement is described in further detail in Section X.E.
6. Structural Implications of Investor Base Diversity
The diversity of the anticipated investor base — encompassing a state pension fund, a university endowment, a life and annuity insurance company, and additional institutional investors yet to be identified by sagebrush — drives the need for significant structural flexibility in the Fund's architecture. Each investor category presents distinct tax, regulatory, and governance requirements that the Fund's structure must accommodate. The structural analysis in Section IV is informed by these investor-specific considerations.
III. KEY FUND ECONOMIC TERMS (SUMMARY)
The following table summarizes the core economic and governance terms that inform the structural decisions analyzed in this memorandum. These terms are preliminary and will be set forth in detail in the LPA, the first draft of which is targeted for circulation to the principals on May 31, 2026. The terms presented here reflect our discussions with the Cobalt principals to date and are subject to further refinement during the LPA drafting process and in response to investor feedback during the marketing period.
Carried Interest Allocation Among Principals. The carried interest entitlement will be allocated among the principals of the General Partner as follows: Dr. Marcus Yeung — 55%; Priya Dasgupta — 35%; Alan Whitford — 10%. The specific mechanics of this allocation, including vesting schedules, forfeiture provisions, and treatment upon departure of a principal, will be governed by the GP LLC Agreement and any ancillary carried interest allocation agreements, the drafting of which is a separate workstream targeted for completion concurrently with the first draft LPA.
Fee Waterfall Illustration (at $750M Target)
To illustrate the interplay between the management fee, placement fee, and fee offset mechanics, we present the following simplified calculations at the target fund size of $750 million:
Annual Management Fee During Investment Period:
$750,000,000 × 2.00% = $15,000,000 per annum
Aggregate Management Fees Over 5-Year Investment Period:
$15,000,000 × 5 = $75,000,000
Illustrative Placement Fee (Assuming sagebrush Sources Entire Third-Party Capital):
Total third-party commitments (excluding GP commitment): $750,000,000 − $15,000,000 = $735,000,000
$735,000,000 × 1.50% = $11,025,000 (fully offset against management fee over the Fund's life)
Net Management Fee to CLSO Management After Full Placement Fee Offset:
$75,000,000 − $11,025,000 = $63,975,000 over the five-year investment period
This represents an effective net management fee rate of approximately 1.71% per annum on aggregate commitments during the investment period, after giving effect to the placement fee offset.
We note that these calculations are illustrative only. The actual placement fee will be based on the commitments actually sourced by sagebrush (as opposed to commitments obtained directly by the Cobalt principals), and the offset will be applied on a pro rata basis over the Fund's life in accordance with the offset mechanics to be specified in the LPA. Additionally, transaction and monitoring fees received by the Management Company from portfolio companies will be subject to an eighty percent (80%) offset against the management fee, further reducing the effective management fee borne by limited partners. The post-investment period management fee, calculated on invested capital rather than aggregate commitments, will decline as portfolio companies are realized, resulting in a naturally declining fee base during the harvest period of the Fund.
IV. FUND STRUCTURE ALTERNATIVES ANALYSIS
This Section IV presents our analysis of six structural alternatives for the Fund. For each alternative, we describe the structure, evaluate its advantages and disadvantages in the context of the Fund's specific circumstances, and provide our recommendation. We note that these alternatives are not mutually exclusive — our recommended approach combines elements of several alternatives to achieve the optimal structure for the Fund.
A. Option 1: Single-Tier Delaware Limited Partnership (Recommended)
1. Description. Under this alternative, the Fund would be organized as a single Delaware limited partnership: Cobalt Life Sciences Opportunities Fund I, LP. The Fund would be formed under the Delaware Revised Uniform Limited Partnership Act, 6 Del. C. §§17-101 et seq. (the "DRULPA"), and would be governed by a limited partnership agreement entered into by the General Partner and all limited partners.
Cobalt Life Sciences GP I, LLC, a Delaware limited liability company, would serve as the general partner of the Fund. The General Partner would be managed by Dr. Marcus Yeung and Priya Dasgupta as managing members. The General Partner would hold the carried interest entitlement and would be responsible for all fund management and investment decisions, subject to the terms of the LPA.
Cobalt Life Sciences Management I, LLC, a Delaware limited liability company, would serve as the management company. The Management Company would employ the Fund's investment professionals (including Dr. Yeung, Ms. Dasgupta, Mr. Whitford, and future hires), receive the management fee from the Fund, and bear organizational expenses in excess of the $1,500,000 cap set forth in the LPA.
Under this single-tier structure, all limited partners would invest directly into the Fund LP. Each limited partner would subscribe for a limited partnership interest in the Fund by executing a subscription agreement and the LPA (or a joinder thereto), and would be subject to capital calls and entitled to distributions in accordance with the terms of the LPA.
This core structure would be supplemented by ancillary mechanisms — including AIV provisions, a blocker corporation, and parallel fund enabling provisions — as described in Sections IV.C through IV.F below, to address the specific needs of particular investors or transactions.
2. Advantages. The single-tier Delaware limited partnership offers several significant advantages for the Fund:
Simplicity and Transparency. A single fund entity reduces administrative complexity, audit costs, and investor confusion. All limited partners participate in a common pool of investments and are subject to a single waterfall calculation, which simplifies reporting, valuation, and distribution mechanics. Institutional investors and their investment consultants are highly familiar with single-tier Delaware LP structures and can efficiently evaluate the Fund's terms and governance.
Market Standard. The single-tier Delaware LP is the market-standard structure for U.S. domestic life-sciences, venture capital, and growth equity funds at the Fund's target size. Based on our experience advising on fund formations in the life-sciences sector, approximately seventy-five to eighty percent of U.S.-sponsored life-sciences funds with target sizes between $500 million and $1 billion employ a single-tier Delaware LP as their primary vehicle, supplemented by ancillary structures as needed.
Straightforward Waterfall Mechanics. With a single pool of capital, the distribution waterfall — including the return of capital, preferred return, GP catch-up, and carried interest — can be calculated across the entire fund on a unified basis. This avoids the complexities of cross-entity waterfall aggregation that arise in master-feeder and multi-vehicle structures.
Familiarity to Existing Investor Base. Cobalt's existing investor base in Fund A and Fund B is familiar with single-tier Delaware LP structures. Maintaining structural consistency across the Sponsor's fund family reduces investor due diligence burden and facilitates re-ups by existing limited partners.
Lower Formation and Ongoing Costs. A single-tier structure requires the formation of fewer entities (the Fund LP, the GP LLC, and the Management Company LLC) compared to a master-feeder or multi-vehicle architecture. Ongoing costs — including audit fees, tax return preparation, fund administration, and legal compliance — are correspondingly lower.
Clear Governance Framework. A single fund entity permits a single LPAC, a single set of LP consent mechanisms, and a single LPA. Governance provisions are applied uniformly to all limited partners, and the GP's authority and obligations are defined in a single governing document (subject to side letter modifications for individual investors).
3. Disadvantages and Limitations
The single-tier Delaware LP structure has certain limitations that should be acknowledged:
Tax-Exempt and Non-U.S. Investor Considerations. A single-tier LP does not inherently address UBTI or ECI concerns for tax-exempt or non-U.S. investors. Income generated by the Fund flows through to all limited partners on a pro rata basis, including categories of income (such as debt-financed income or operating company income) that may give rise to UBTI for tax-exempt investors or ECI for non-U.S. investors. This limitation is addressed through the blocker corporation (Section IV.E) and AIV mechanics (Section IV.D) described below.
Non-U.S. Investor Demand. If significant non-U.S. investor demand materializes during the fundraising process, a single-tier Delaware LP may not be the optimal vehicle for all investor constituencies. Non-U.S. investors may prefer to invest through an offshore vehicle to avoid potential U.S. tax filing obligations and withholding tax complexities. This concern is addressed through the parallel fund option described in Section IV.C.
Insurance Regulatory Considerations. Pinnacle Insurance Group, as a Connecticut-domiciled life and annuity insurer, may require blocker entity participation for certain investments that generate income with adverse insurance regulatory accounting characteristics. A single-tier LP does not, standing alone, address these concerns, but the blocker mechanism described in Section IV.E provides the necessary accommodation.
4. Recommendation. The single-tier Delaware limited partnership is our recommended primary fund vehicle. Based on the Fund's target investor base (which is predominantly U.S. institutional), the Fund's target size ($750 million), the Fund's investment strategy (clinical-stage therapeutics, medical devices, and platform biotechnology), and prevailing market practice for life-sciences opportunistic funds, the single-tier Delaware LP provides the optimal combination of simplicity, cost-efficiency, and institutional acceptability.
The limitations identified above — primarily relating to UBTI/ECI planning for tax-sensitive investors and potential non-U.S. investor demand — are effectively addressed through the ancillary structures described in Sections IV.C through IV.E below. These ancillary structures are additive to the core single-tier architecture and do not require any modification to the primary fund vehicle.
B. Option 2: Dual Master-Feeder Structure
1. Description. Under a dual master-feeder structure, investment activity would be conducted through a master fund — organized either as a Delaware limited partnership or as an offshore entity (such as a Cayman Islands exempted limited partnership) — that receives capital through one or more feeder funds. The typical architecture involves two feeder vehicles:
(a) A domestic feeder — organized as a Delaware limited partnership — through which U.S. taxable investors subscribe. The domestic feeder invests substantially all of its assets into the master fund.
(b) An offshore feeder — organized as a Cayman Islands exempted limited partnership, a Cayman Islands exempted company, or a similar offshore entity — through which non-U.S. investors and U.S. tax-exempt investors subscribe. The offshore feeder similarly invests substantially all of its assets into the master fund. The offshore feeder may function as a blocker for UBTI and ECI purposes, depending on its entity classification for U.S. tax purposes.
Each feeder is a standalone entity with its own governing documents, although the economic terms (management fee, carried interest, preferred return, and distribution waterfall) are designed to replicate the master fund's terms. The general partner (or an affiliate) manages all entities, and investment decisions are made at the master fund level.
2. Advantages. The master-feeder structure offers certain advantages:
Clean Investor Segregation. The master-feeder architecture cleanly separates U.S. taxable, U.S. tax-exempt, and non-U.S. investor constituencies into distinct legal entities, each of which can be structured to optimize the tax treatment of its particular investor class.
Offshore blocker Functionality. An offshore feeder organized as an entity classified as a corporation for U.S. tax purposes (such as a Cayman Islands exempted company that does not elect partnership treatment) can serve as a blocker for UBTI and ECI, shielding tax-exempt and non-U.S. investors from flow-through of undesirable categories of income.
Established Architecture. The master-feeder structure is well-established in hedge fund and larger private equity fund contexts, and sophisticated institutional investors are familiar with its mechanics.
3. Disadvantages. Despite its structural elegance, the master-feeder architecture presents significant disadvantages for the Fund:
Incremental Formation and Ongoing Costs. A full master-feeder requires the formation and maintenance of multiple entities across multiple jurisdictions. Offshore legal counsel (Cayman Islands or other offshore jurisdiction) must be engaged for the formation and ongoing compliance of the offshore feeder. Registration fees, annual government fees, and economic substance requirements in the offshore jurisdiction add to the cost burden. Dual (or triple) audit engagements, dual fund administration, and multiple sets of tax returns significantly increase ongoing operating costs.
Disproportionate Complexity. The complexity of a master-feeder structure is disproportionate to the Fund's anticipated investor base. The three identified anchor investors — Ironwood PERS, Northgate, and Pinnacle — are all U.S. domestic institutional investors. No significant non-U.S. fundraising target has been identified to date. While sagebrush may source non-U.S. capital during the marketing process, the current pipeline does not support the formation costs and ongoing administrative burden of a full master-feeder at this time.
Geographic Investment Allocation Is Not Determinative. The Fund's investment strategy permits up to twenty-five percent of aggregate commitments to be deployed in Western Europe and Israel. This geographic allocation relates to the location of portfolio companies — not the domicile of investors — and does not, standing alone, require an offshore fund vehicle.
Market Practice. In our experience, first-time opportunistic life-sciences funds at the $750 million target size generally do not employ a master-feeder structure unless substantial non-U.S. limited partner demand (typically in excess of $100 million to $150 million) exists at the time of fund formation or is reasonably anticipated.
4. Recommendation. The dual master-feeder structure is not recommended at this time. The structure's incremental costs and complexity are not justified by the Fund's current investor pipeline, which is predominantly U.S. domestic institutional. If sagebrush's marketing efforts identify more than $50 million in non-U.S. investor demand, a parallel fund (Option 3, discussed below) may provide a more cost-effective and administratively efficient alternative to a full master-feeder.
We note that this recommendation can be revisited at any time prior to the first close if fundraising dynamics change materially. The LPA for the main Fund should include enabling provisions that would permit the formation of a parallel fund or feeder vehicle without requiring LP consent, as discussed in Section IV.C below.
C. Option 3: Parallel Fund for Non-U.S. and/or Tax-Exempt Investors
1. Description. Under this alternative, a separate limited partnership or offshore vehicle (the "Parallel Fund") would be formed to invest alongside the main Fund on a pro rata basis in all investments. The Parallel Fund would be structured to address specific tax or regulatory needs of non-U.S. investors or certain U.S. tax-exempt investors — for example, by functioning as a UBTI blocker at the vehicle level, by avoiding the generation of effectively connected income for non-U.S. investors, or by providing a separately administered vehicle that can independently satisfy ERISA or VCOC requirements.
The General Partner (or an affiliate) would manage both the main Fund and the Parallel Fund. Investments would be allocated between the main Fund and the Parallel Fund on a pro rata basis (based on their respective aggregate commitments), and the economic terms of the Parallel Fund — including management fee, carried interest, preferred return, and distribution waterfall — would be identical to those of the main Fund. The economics of the main Fund and the Parallel Fund would be aggregated for purposes of calculating the carried interest waterfall, concentration limits, recycling allowances, and other provisions that reference aggregate capital.
2. Advantages. Preservation of Core Structure. The parallel fund approach preserves the single-tier Delaware LP as the core fund vehicle while accommodating the specific needs of a subset of investors. This avoids the need to restructure the main Fund or impose the costs and complexity of a full master-feeder on the entire investor base.
Cost Efficiency. For a limited number of non-U.S. or tax-exempt investors (as compared to the broader investor base), a parallel fund is more cost-effective than a full master-feeder structure. The Parallel Fund requires the formation and administration of a single additional vehicle, rather than the multiple entities required in a master-feeder architecture.
Deal-by-Deal Allocation Flexibility. The parallel fund structure permits deal-by-deal allocation flexibility, which may be useful if certain investments generate income that is unfavorable for the Parallel Fund's investors (e.g., UBTI or ECI) and should be allocated differently or held through an AIV.
Market Practice. Parallel fund structures are a common and well-accepted market practice for venture capital, growth equity, and opportunistic life-sciences funds. Institutional investors and their counsel are familiar with parallel fund mechanics and governance provisions.
3. Disadvantages. Additional Entity Formation and Administration. The Parallel Fund requires the formation of a separate legal entity (or multiple entities, if both a domestic and an offshore parallel vehicle are needed), a separate limited partnership agreement (or other governing document), separate K-1 reporting (or its equivalent), and a separate audit engagement. These costs, while lower than those of a full master-feeder, are not negligible.
Parallel Fund Provisions in the Main LPA. The main Fund's LPA must include provisions addressing the interaction between the main Fund and the Parallel Fund, including aggregation of economics, pro rata allocation mechanics, cross-fund coordination of capital calls and distributions, and treatment of recycling, concentration limits, and broken-deal expenses across vehicles. These provisions add complexity to the LPA drafting process and may require negotiation with anchor investors.
Cross-Vehicle Waterfall Complexity. Calculating the distribution waterfall across two vehicles — even with aggregated economics — introduces additional complexity compared to a single-vehicle waterfall. The fund administrator (Halcyon Fund Services) must be engaged to implement dual-vehicle tracking and reporting.
4. Recommendation. We provisionally recommend the parallel fund as a contingent structure. Specifically, we recommend that the main Fund's LPA include parallel fund enabling provisions that would authorize the General Partner to form a Parallel Fund without requiring LP consent. The Parallel Fund itself would be formed only if non-U.S. investor commitments reach or exceed $50 million — the threshold that would also trigger the requirement for at least one non-U.S. LP representative on the LPAC. If this threshold is met, the Parallel Fund can be formed prior to or concurrently with the final close (target: May 15, 2027).
This approach preserves maximum flexibility while avoiding the premature incurrence of formation and administration costs for a vehicle that may not be needed.
D. Option 4: Alternative Investment Vehicle (AIV) Mechanics
1. Description. Under this alternative, the LPA would authorize the General Partner to form one or more alternative investment vehicles ("AIVs") — special-purpose entities that participate in specific investments alongside the Fund to accommodate particular tax, legal, regulatory, or operational requirements of certain limited partners. AIVs are distinguished from parallel funds in that they are not standing investment vehicles with broad investment mandates; rather, they are deal-specific or investor-specific entities formed on an as-needed basis.
A typical AIV is organized as a Delaware LLC or LP (or, in some cases, an offshore entity) and is managed by the General Partner or an affiliate. The AIV invests in a specific portfolio company (or subset of portfolio companies) alongside the main Fund, with the AIV's limited partners consisting of those Fund investors who require the structural accommodation that the AIV provides. The remaining Fund investors participate in the same investment through the main Fund.
2. Common Uses
AIVs serve range purposes in the context of a diversified institutional fund. The most common use cases for CLSO Fund I include:
(a) Isolating UBTI- or ECI-Generating Investments. If a particular portfolio company investment generates income that would constitute UBTI for tax-exempt investors or ECI for non-U.S. investors, the General Partner may form an AIV to hold that investment on behalf of tax-sensitive investors, structured in a manner that blocks or mitigates the flow-through of such income (e.g., through a corporate AIV).
(b) Jurisdictional Holding Requirements. If an investment in a European or Israeli company requires that the Fund hold its interest through a local entity (for tax, regulatory, or commercial reasons), the General Partner may form an AIV organized in the relevant jurisdiction.
(c) Insurance Regulatory Compliance. Pinnacle Insurance Group or other insurance company investors may require that certain investments be held through an AIV structured to comply with applicable insurance regulatory requirements — for example, to satisfy asset classification, concentration, or valuation requirements under Connecticut insurance law.
(d) Leverage Isolation. If the Fund uses debt financing at the portfolio company or deal level, the General Partner may form an AIV to isolate the leveraged investment, insulating the main Fund and its investors from the regulatory and tax consequences associated with fund-level or deal-level leverage.
3. Key Terms and Guardrails
To protect limited partners while preserving the General Partner's flexibility to form AIVs, the LPA should include the following key terms and guardrails:
• AIVs must invest on substantially the same terms as the main Fund (i.e., the same entry price, governance rights, and economic terms for the underlying investment).
• AIV economics — including management fee, carried interest, preferred return, and distribution waterfall — must aggregate with the main Fund's economics. An AIV investor should not be better or worse off economically than if the investor had participated in the same investment through the main Fund.
• The General Partner has sole discretion to form AIVs, subject to a good-faith determination that the AIV is necessary for tax, legal, regulatory, or operational reasons. The General Partner may not use AIV authority to cherry-pick investments or selectively allocate opportunities.
• No limited partner is required to participate in an AIV. Participation is offered on an opt-in or directed basis, with the General Partner determining which investors should be offered AIV participation based on the specific tax, legal, or regulatory need that the AIV is designed to address.
• The General Partner must provide notice to the LPAC of the formation of any AIV and the reasons therefor, and may be required to obtain LPAC consent if the AIV involves a potential conflict of interest.
4. Recommendation. AIV provisions are strongly recommended as a standard feature of the LPA. AIV mechanics provide the Fund with maximum structural flexibility at minimal upfront cost — no entities are formed, and no expenses are incurred, until a specific need arises. The AIV authority is market-standard for funds of this type and size and is essential given the diversity of the anticipated investor base, which includes a state pension fund (Ironwood PERS), a university endowment (Northgate), and a life and annuity insurer (Pinnacle), each with distinct tax and regulatory profiles.
The inclusion of robust AIV provisions in the LPA will allow the General Partner to address investor-specific needs on a transaction-by-transaction basis without requiring amendments to the LPA or the formation of standing parallel vehicles. We recommend that the LPA's AIV provisions be drafted with sufficient breadth to accommodate the full range of use cases described above, subject to the guardrails outlined in Section IV.D.3 to protect limited partner interests.
E. Option 5: Blocker Corporation
1. Description. Under this alternative, Cobalt Life Sciences Opportunities Fund I (Blocker), Inc. would be organized as a Delaware C-corporation to serve as an interposition entity — or "Blocker" — between certain categories of investors and the Fund (or specific portfolio investments). The blocker entity would be formed as a subsidiary or affiliate of the Fund, and tax-sensitive investors would invest through the blocker rather than (or in addition to) investing directly in the Fund.
The blocker corporation absorbs income at the entity level and pays corporate income tax thereon. Investors in the blocker receive dividends (or other distributions) from the blocker, rather than receiving flow-through allocations of the Fund's income. By interposing a corporate entity, the blocker "Blocks" the flow-through of UBTI, ECI, or other categories of income that would be unfavorable for the blocker's investors.
2. Investor-Specific Analysis
Pinnacle Insurance Group. As a life and annuity insurer, Pinnacle may prefer or require blocker entity participation for investments that generate debt-financed income, certain operating company income, or income that creates adverse reserve or risk-based capital treatment under Connecticut insurance regulations (including the Connecticut Insurance Code and applicable National Association of Insurance Commissioners ("NAIC") guidelines). Pinnacle has specifically requested access to a blocker entity as a condition of its investment. We understand from Rachel Stein that Pinnacle's internal investment guidelines require blocker participation for private fund investments that may generate more than a de minimis amount of insurance-unfavorable income.
Northgate Endowment Management. As a university endowment likely tax-exempt under IRC §501(c)(3), Northgate may be subject to UBTI on certain categories of Fund income, including debt-financed income under IRC §514 and income from the conduct of an unrelated trade or business under IRC §§511–515. Northgate may therefore wish to participate in certain investments through the blocker to avoid UBTI exposure. Northgate's request for an "ERISA-compliant carve-out structure" may overlap with blocker considerations if the ERISA carve-out is implemented through a separate entity that also serves as a UBTI blocker. The interaction between ERISA and blocker structuring for Northgate is addressed further in Section VII.C.
Ironwood PERS. As a state government pension fund, Ironwood PERS is generally exempt from federal income tax and is not subject to UBTI in most cases. Accordingly, blocker participation is typically not required for state pension funds. However, the Tax Structuring Memorandum prepared by Leonard Cross should confirm the UBTI analysis for Ironwood PERS with respect to debt-financed income scenarios, as certain state pension funds have adopted policies of avoiding even potential UBTI exposure as a matter of administrative convenience.
3. Tax Considerations (Summary)
The use of a blocker corporation involves inherent tax trade-offs that must be carefully evaluated for each investor:
• Double Taxation. Income earned by the blocker corporation is subject to corporate-level federal income tax (currently at a rate of 21% under IRC §11). When the blocker distributes its after-tax earnings to its investors as dividends, those dividends may be subject to additional tax at the investor level (depending on the investor's tax status). This double-taxation cost must be weighed against the benefit of UBTI or ECI avoidance. For tax-exempt investors, the calculus turns on whether the UBTI that would be incurred through direct Fund participation exceeds the corporate tax cost of blocker participation; for insurance company investors, the analysis also incorporates the insurance regulatory accounting implications.
• IRC §1061 — Carried Interest. The Tax Cuts and Jobs Act of 2017 imposed a three-year holding period requirement (in lieu of the general one-year holding period for long-term capital gains) for certain carried interest income under IRC §1061. The flow of carried interest through a blocker corporation may have implications for the application of §1061, particularly if the blocker's ownership structure or distribution mechanics alter the character or holding period of the underlying gains. These issues are addressed in detail in the Tax Structuring Memorandum.
• State Tax Implications. The blocker corporation may be subject to state income tax in jurisdictions where it has nexus, including Delaware (which imposes an annual franchise tax on domestic corporations) and any state in which the blocker conducts business or holds investments.
Detailed blocker entity modeling — including a comparison of the after-tax economic outcomes for blocker participants versus direct Fund participants under various income and return scenarios — is being prepared by Greystone Tax Advisors LLC (Kenneth Liu) in coordination with Leonard Cross and is included in the Tax Structuring Memorandum delivered concurrently with this memorandum.
4. Recommendation. We recommend that the blocker corporation be structured as an available entity to be formed if and when needed based on investor demand and specific deal characteristics. The LPA should include blocker enabling provisions that authorize the General Partner to form Cobalt Life Sciences Opportunities Fund I (Blocker), Inc. (or similar blocker entities) without LP consent, subject to the same good-faith standard and LPAC notice requirements applicable to AIVs.
The formation of the blocker corporation should be triggered by confirmed investor participation requiring blocker access. Based on the current investor pipeline, Pinnacle Insurance Group (which has specifically requested blocker access) and Northgate Endowment Management (which may require blocker access depending on the UBTI profile of the Fund's investments) are the most likely initial users of the blocker. The timing of blocker formation should be coordinated with the first close and may occur prior to or concurrently with the initial capital call if Pinnacle or Northgate confirm their participation prior to that date.
F. Option 6: Feeder Fund(s)
1. Description. Under this alternative, one or more standalone feeder vehicles — organized as domestic limited partnerships, domestic LLCs, or offshore entities — would be formed to aggregate investors of a particular type and invest into the main Fund as a single limited partner. Feeder funds are distinguished from the master-feeder architecture described in Option 2 in that feeders here are supplementary vehicles to the primary single-tier LP, not the core structural architecture.
A feeder fund is typically used when a group of investors shares common characteristics (such as tax status, regulatory requirements, or ticket size) and can be efficiently aggregated into a single vehicle for purposes of investing in the main Fund. The feeder fund subscribes for a limited partnership interest in the main Fund and is treated as a single LP for purposes of the LPA's governance, reporting, and waterfall mechanics. The feeder fund's own governing document specifies the terms on which its investors participate, including any pass-through of governance rights, reporting, and distributions from the main Fund.
2. Use Cases
In the context of CLSO Fund I, potential use cases for feeder funds include:
(a) Aggregation of Smaller Institutional LPs or Family Offices. If the Fund's minimum commitment threshold (to be specified in the LPA and PPM) excludes smaller investors who are otherwise desirable, a feeder fund could aggregate those investors into a single vehicle that meets the minimum commitment. This approach is sometimes used by placement agents to consolidate a group of smaller allocators.
(b) Non-U.S. Investor Aggregation. If non-U.S. investor demand exists but is insufficient to warrant a full parallel fund (i.e., less than $50 million), a feeder fund organized as an offshore entity could aggregate non-U.S. investors and invest into the main Fund as a single LP. This is a lighter-weight alternative to the parallel fund described in Option 3.
3. Recommendation. Feeder funds are not recommended at this time for initial fund formation. The identified anchor investors are individually of sufficient size to invest directly in the main Fund, and the fundraising strategy does not currently contemplate the aggregation of smaller commitments through a feeder vehicle. If sagebrush's marketing efforts identify a group of smaller institutional investors or family offices that would benefit from feeder fund aggregation, this option can be revisited during the fundraising process.
If a feeder fund is ultimately adopted, it would be formed as a Delaware limited partnership (for U.S. investors) or an offshore entity (for non-U.S. investors) and would subscribe as a single limited partner in the main Fund. The feeder fund's terms would replicate the main Fund's economic terms, and its governing document would address the allocation of governance rights and reporting obligations to the feeder fund's underlying investors.
V. RECOMMENDED ENTITY HIERARCHY AND ORGANIZATIONAL CHART
Based on our analysis in Section IV, we recommend the following entity hierarchy for CLSO Fund I. The entities described below fall into three categories: (A) core entities to be formed as part of the initial fund formation process; (B) existing entities that play a role in the fund structure; and (C) contingent entities to be formed only if and when specific conditions are met.
A. Core Entities (To Be Formed)
1. Cobalt Life Sciences Opportunities Fund I, LP
Entity type: Delaware limited partnership, formed under the DRULPA.
Role: The Fund — the primary investment vehicle for the Fund's investment program. All portfolio investments will be made by or through the Fund (directly or through AIVs, the blocker corporation, or the parallel fund, as applicable).
General Partner: Cobalt Life Sciences GP I, LLC.
Limited Partners: Institutional investors (including Ironwood PERS, Northgate, Pinnacle, and additional investors sourced by sagebrush), as well as the General Partner in its capacity as a limited partner for the GP commitment.
Governing Document: Limited Partnership Agreement (the "LPA"), to be entered into by the General Partner and all limited partners. Target first draft circulation: May 31, 2026.
2. Cobalt Life Sciences GP I, LLC
Entity type: Delaware limited liability company, formed under the Delaware Limited Liability Company Act, 6 Del. C. §§18-101 et seq.
Role: The General Partner of the Fund. Responsible for all fund management and investment decisions, subject to the terms of the LPA. Holds the carried interest entitlement.
Managing Members: Dr. Marcus Yeung and Priya Dasgupta.
Carried Interest Allocation: The carried interest entitlement is allocated among the principals as follows: Dr. Marcus Yeung — 55%; Priya Dasgupta — 35%; Alan Whitford — 10%. The specific mechanics of this allocation will be set forth in the GP LLC Agreement and any ancillary carried interest allocation agreements.
GP Commitment: The General Partner will make the GP commitment on behalf of the principals — a minimum of two percent (2%) of aggregate commitments, equaling $15,000,000 at the target fund size of $750 million. The GP commitment will be invested on the same terms as LP commitments (drawn pro rata, returned pro rata) and will not be subject to the management fee.
Governing Document: LLC Operating Agreement (the "GP LLC Agreement"), to be entered into by Dr. Yeung, Ms. Dasgupta, and Mr. Whitford. Target first draft: May 31, 2026.
3. Cobalt Life Sciences Management I, LLC
Entity type: Delaware limited liability company.
Role: The Management Company. Employs the Fund's investment professionals (Dr. Yeung, Ms. Dasgupta, Mr. Whitford, and future hires). Receives the management fee from the Fund. Bears organizational expenses in excess of the $1,500,000 cap. Implements management fee offset mechanics (100% offset for placement fees paid to sagebrush; 80% offset for transaction and monitoring fees received from portfolio companies).
Registration: If full registration under the Advisers Act is required (as analyzed by Fielding & O'Hara), the Management Company (or Cobalt Ventures LP, depending on entity-level registration analysis) would serve as the registered investment adviser.
Governing Document: LLC Operating Agreement (the "Management Company LLC Agreement"). Target first draft: May 31, 2026.
4. Cobalt Life Sciences Opportunities Fund I (Blocker), Inc.
Entity type: Delaware C-corporation, formed under the Delaware General Corporation Law, 8 Del. C. §§101 et seq. To be formed if and when needed based on confirmed investor participation requiring blocker access.
Role: The blocker Corporation. Interposes between tax-sensitive investors (Pinnacle, and potentially Northgate) and the Fund or specific portfolio investments. Absorbs income at the corporate level and distributes after-tax earnings to its shareholders as dividends, thereby blocking the flow-through of UBTI, ECI, or insurance-unfavorable income to its investors.