Chapter 3
Fund Structure
Fund Structure: 506(b), AIFMD & ELTIF
US Regulatory Landscape: 506(b) vs. 506(c) vs. Form D filing
EU Routes: AIFMD passport vs. NPPR vs. ELTIF 2.0 (new in 2024)
Emerging managers don’t just pick a vehicle; they pick a distribution strategy, a compliance burden, an investor experience, and an operations footprint. The right structure makes your raise possible; the wrong one slows it to a crawl. This guide lays out the US and EU routes that first- and second-time managers are actually using in 2025-2026, what each unlocks (and forbids), and how to translate those choices into LP-ready materials. Where rules or dates matter, we cite primary sources, so your counsel and admin can move fast on the same facts.
The US Path - The US path: Regulation D + Form D
506(b): No advertising, no verification, up to 35 non-accredited
What it allows. Rule 506(b) is the classic private-offering safe harbor. You can raise an unlimited amount from an unlimited number of accredited investors and up to 35 non-accredited but “sophisticated” purchasers, so long as you do not use general solicitation or advertising. “No advertising” means exactly that: public pitches, broad email blasts, promotional landing pages, and social posts that “offer” interests are off-limits.
How eligibility works. For accredited investors, you must have a reasonable belief they qualify, based on your relationship with the investor and the information you have, but no third-party verification is required under 506(b). If any non-accredited investors participate, you owe enhanced disclosures and must be available to answer their questions (Rule 502(b)). In practice, most emerging managers keep non-accredited participation to a small, strategic set and prepare a fuller disclosure pack in the data room.
State “blue sky” reality. Securities sold under Rule 506 are “covered securities” under NSMIA, which preempts state registration/qualification; however, most states still require a notice filing and fee (often made off your Form D through NASAA’s EFD system). Build a simple state matrix (who files, when, and how much) and keep receipts in your compliance folder. As one example, New York shifted to EFD notice filings for Rule 506 offerings, aligning with most states.
When it’s a fit. Choose 506(b) when your raise will be relationship-driven and private founders, operators, angels, and friendly family offices, and you value the flexibility to include a limited number of sophisticated non-accredited LPs. It keeps your marketing quiet, your diligence straightforward, and your closing mechanics familiar, provided you document how each LP entered the funnel, maintain your reasonable-belief files for accredited status, and handle state notices alongside your Form D.
506(c): Public advertising, accredited-only, verification required
What it allows. Rule 506(c) lets you market your fund publicly, podcasts, LinkedIn, conference stages, landing pages, if every purchaser is accredited and you take “reasonable steps to verify” it. Self-attestations alone don’t cut it; investors still receive restricted securities under Reg D.
How to operationalize verification. The rule is principles-based: choose methods that are reasonable for your facts (investor type, check size, how you met). The SEC lists non-exclusive methods that generally work when applied properly, reviewing tax forms (W-2s/K-1s/returns), bank or brokerage statements, or obtaining a written confirmation from a CPA, attorney, broker, or adviser. Many first-time GPs use a third-party service; others run an in-house checklist and keep evidence in the data room.
State “blue sky” reality. 506(b) and 506(c) sales are “covered securities” under NSMIA, so states can’t merit-review your deal, but most still require notice filings and fees (often via NASAA’s EFD portal). Keep a per-state calendar alongside your Form D.
Signal vs. scale. If you’ve heard that using 506(c) “signals a weak network,” remember the rule’s purpose: expand market access while preserving protections. If public channels are core to your funnel and you can verify every purchaser cleanly, 506(c) is the right tool.
When it fits. Choose 506(c) when you rely on content, conferences, and press to widen top-of-funnel, and you’re comfortable verifying every investor before closing. Pair it with a short Verification Policy (methods, re-verification at later closes, retention periods) and a Marketing Policy (which activities are “general solicitation” and how you gate subscriptions until verification is complete).
Check-the-box: when to use each
Pick 506(b) if your raise is relationship-driven and private and you want the option to include a few sophisticated non-accredited LPs (up to 35). It keeps communications quiet and diligence simple, no formal third-party accreditation verification, but you must police all outward comms (conference remarks, podcasts, social posts, websites) so nothing looks like a public “offer.” Good fit when your LP list is mostly founders/operators, friendly family offices, and existing angels.
Pick 506(c) if you need scale and awareness through public channels (press, events, LinkedIn, podcasts, landing pages) and you’re comfortable selling to accredited-only investors with documented verification at each close (e.g., CPA letters, income/asset docs, or a third-party verifier). It expands top-of-funnel and removes the “did we just solicit?” risk, but adds a compliance workflow, write a short Verification Policy and keep evidence in your data room.
Operational reality:
- 506(b): Build a sourcing log showing pre-existing, substantive relationships; prepare enhanced disclosures if any non-accrediteds participate; keep a state notice matrix with fees and dates.
- 506(c): Route every public CTA to an accreditation flow before subscriptions; set re-verification windows for rolling closes; align marketing go-live with your Form D plan.
Sequencing caution. The SEC’s 2020 integration updates introduced safe harbors (including a 30-day buffer) to reduce the risk that two offerings contaminate each other. In practice, most first-time GPs still choose one lane per fund to avoid evidentiary headaches: mixing public 506(c) messaging with a concurrent 506(b) close is where teams get tripped up.
Form D: 15-day deadline, penalties, and state/SRO angles
When to file. File Form D on EDGAR within 15 calendar days after the “first sale,” defined as the date the first investor is irrevocably contractually committed. If day 15 lands on a weekend/holiday, the due date rolls to the next business day. The SEC does not charge a filing fee.
Why it matters. Form D is a notice filing, not a condition of the Rule 504/506 exemption, but failure to file violates Rule 503. In December 2024, the SEC brought stand-alone enforcement actions and imposed civil penalties for late/missed Form Ds; under Rule 507, a court injunction can disqualify an issuer from relying on Reg D in the future. Treat the 15-day clock as non-negotiable.
States (blue sky). Rule 506 securities are “covered securities” under NSMIA, so states cannot merit-review your offering, but most still require notice filings and fees, commonly via NASAA’s Electronic Filing Depository (EFD). Build a per-state tracker (who files, fee, due date keyed to first in-state sale) and keep receipts.
Practical checklist:
- Put a Regulatory Calendar in the deck/data room: Form D target date, each state notice date, internal sign-offs. (LPs notice this hygiene.)
- Draft Form D before first close so you can file immediately after the first sale; align your issuer name/entities with offering docs to avoid amendments.
- If you’re using 506(c), align public marketing go-live with your filing plan so the first sale doesn’t sneak past the clock
Cost: formation budgets and lightweight alternatives
There’s no single menu price because scope, entities (e.g., blocker/parallel), tax, and counsel tier drive variance. Public references give you defensible anchors:
Legal formation fees. Credible ranges for private funds commonly fall from $20k up to $150k+, depending on complexity and law firm; this aligns with long-standing market commentary (often drawing from hedge/private fund precedents). Use this as a budget band, then solicit quotes against your exact scope.
Platformized alternatives:
- AngelList posts its venture-fund pricing framework (annual flat + percent of commitments, plus a one-time implementation fee) and a calculator to preview costs, useful as an apples-to-apples baseline when you RFP admins.
- Allocations is one of the few to publish clear price points (e.g., fund admin “from $19,500/year,” SPVs with posted fees), giving first-time GPs transparent comparables. Verify inclusions (formation, banking, AML/KYC, tax).
The EU Path - AIFMD passport, NPPR, and ELTIF 2.0
Europe gives you three distinct routes, each aimed at a different investor audience and ops burden. Anchor your choice to who you’re selling to (professionals vs. private-wealth/retail) and how much cross-border scale you need.
AIFMD passport: pan-EU access to professional investors
If you operate an EU AIFM managing an EU AIF, the AIFMD marketing passport lets you market across Member States once authorised, no country-by-country patchwork. The updated AIFMD II – Directive (EU) 2024/927, was published in the Official Journal on March 26, 2024, entered into force April 15, 2024, and must be transposed by April 16, 2026 (some new reporting items apply from April 16, 2027). The amendments target delegation, liquidity risk management, supervisory reporting, depositary/custody, and loan-originating AIFs. Your action item: run a gap-assessment.
NPPR: country-by-country access
If you’re non-EU (or your set-up doesn’t qualify for a passport), you can still market in many Member States via National Private Placement Regimes (NPPR), but requirements vary by country (pre-marketing/marketing notifications, filings, ongoing reporting, local fees, timelines). It’s workable for targeted entries or a measured market test, but you’ll manage a compliance mosaic until (and unless) a third-country passport ever arrives. Start with a country matrix (rules, timelines, costs, reverse-solicitation posture) based on regulator pages and counsel summaries (e.g., FCA, Linklaters).
ELTIF 2.0: semi-liquid, “retail-friendly” access (RTS in force since Oct 26, 2024)
ELTIF 2.0 (Regulation (EU) 2023/606) applies from Jan 10, 2024 and is the dedicated EU regime for long-term assets that can be offered to retail/private-wealth investors. The regime widens eligible assets, relaxes portfolio composition rules, and critically, permits redemptions under strict conditions. The Regulatory Technical Standards (Commission Delegated Regulation (EU) 2024/2759) entered into force Oct 26, 2024 and specify the core operating mechanics: when derivatives count as hedges, redemption-policy requirements, liquidity management tools (LMTs), matching of transfer requests, asset-disposal criteria, and cost-disclosure elements. In practice, that’s what makes semi-liquid retail distribution feasible if you design dealing calendars, notice/gates, and liquidity sleeves that actually match the asset mix.
Working model. Many managers exploring ELTIF 2.0 begin with quarterly dealing plus notice periods and gates, backed by a conservative liquidity sleeve. Expect iterative dialogue with your NCA, depository, and distributor, they’ll expect the redemption/LMT architecture to be embedded in the prospectus, FAQs, and investor disclosures from day one.
Practical decision tree (pick one, then build ops around it)
- Professional investors across multiple Member States? → AIFMD passport (EU AIFM/EU AIF). Start AIFMD II readiness now; Member States must transpose by April 16, 2026.
- Testing 1–2 countries as a non-EU manager? → NPPR with local counsel; accept country-specific filings, timelines, and ongoing reporting.
- Targeting private-wealth/retail with periodic liquidity? → ELTIF 2.0, engineered from the RTS back (redemptions, LMTs, transfer matching, disposal, costs). Build the dealing calendar and liquidity governance before distributor onboarding.
Fee & Economics Comparison
2/20 model, carry structures, and GP commit (what LPs actually want to see)
The ILPA Principles 3.0 remain the lingua franca for alignment and transparency. Use ILPA-style displays for fees, waterfall, GP commit sources, and clawback safeguards so diligence is legible across LPs.
- Management fees. Many EM funds propose ~2% during the investment period with step-downs (e.g., to invested capital or NAV) thereafter. Small funds should show a budget and headcount that fits 1.5–2.0%; LPs scrutinize whether 2.0% starves the portfolio or over-funds G&A. ILPA’s materials provide the structure to present this cleanly.
- Carry & waterfalls.
- European (“fund-as-a-whole”) waterfall: carry only after returning contributed capital (and, if applicable, pref). This reduces clawback risk and is consistent with ILPA’s model LPA framing.
- American (“deal-by-deal”) waterfall: faster GP distributions but requires robust escrow and clawback. Whichever you pick, map admin mechanics (escrow %, clawback timing) on one slide.
GP commitment. There’s no statutory %; LPs want a meaningful, cash, at-risk amount with clear financing sources/timing. Present this on an ILPA-style economics page alongside offsets and fee-waiver mechanics (if any).
Why 1.5% vs. 2.0% matters at smaller fund sizes
At $25–$75m, each 50 bps is real operating runway (analyst, platform, or compliance). Pair your headline fee with:
- step-downs (post-investment period),
- offsets for transaction/break fees, and
- a two-year cash budget that shows you can execute the strategy without starving post-investment work. Use ILPA templates to normalize the presentation.
Clawback vs. European waterfall implications
LPs will scan for downside scenarios. Add a one-page “Math of the Waterfall” with three cases (base/up/down) showing when carry is paid, escrow percentages, and clawback timing if later losses reverse early deal-by-deal carry. Citing ILPA’s Principles/Model LPA helps you use standardized terms.
Service Provider Ecosystem
Fund admin costs
Admin pricing swings with LP count, number of entities (feeders/blockers), jurisdictions, tax complexity, and whether you bundle the LP portal and deal ops stack. Use public anchors in your RFPs, then insist on a written scope.
- AngelList publishes a venture-fund pricing calculator and plan pages that show a one-time implementation fee plus predictable annual pricing (often paired with a small % of commitments over a 10-year horizon) covering fund admin, K-1/tax, valuation support, and an LP portal. These pages are ideal baselines for apples-to-apples quotes.
- Allocations is one of the few providers with explicit public price points—e.g., fund admin “from $19,500/year” and SPVs with posted one-time fees, useful as a negotiation floor and for early TCO models. Validate inclusions (formation, banking, AML/KYC, tax prep, portal).
Because inclusions vary (audit/tax prepared in-house or coordinated, parallel fund entities, non-US filings), quoting a universal “$15k–$50k per year” without scope is risky. Instead, put two real quotes side-by-side and attach an assumptions sheet (LP count, entities, tax filings, audit, FX, ELTIF add-ons if applicable).
Legal counsel selections
Large and mid-market formation teams publish guidance you can mine to structure your SOW: what counts as organizational expenses, where negotiation friction lives, and which documents are commonly capped or passed through. Vinson & Elkins’ overview is a practical checklist to frame your bid package, even if you award to a boutique.
For budgeting, public sources place legal formation for private funds in a broad band (≈ $20k–$150k+) depending on structure (parallel/feeder/offshore), negotiations (side letters/“most-favored nation”), and firm tier. Treat this as a planning band, then validate with two quotes tied to your exact structure.
AML/KYC requirements + cost
Regardless of jurisdiction, expect investor AML/KYC at onboarding (sanctions/PEP screens, source-of-funds checks) and retention of evidence in the investor file, often run by the admin in the base scope. If you’re building EU retail access via ELTIF 2.0, add appropriateness/suitability checks for retail, plus the operational layers the ELTIF RTS require: a documented redemption policy, calibrated liquidity-management tools (LMTs), matching of transfer requests, disposal criteria, and cost disclosures. These are not “legal-only” tasks, they drive your dealing calendar, notice periods, gates, and the work your admin, distributor, and depositary must perform. Bake them into the admin SOW and your investor-experience map.
Pulling it together: your LP-ready artifacts
US (506[b]/[c])
- Offering mechanics memo (PDF, 3–5 pages).
Include: the rule you’re using (506[b] vs 506[c]); investor eligibility (accredited-only for 506[c] vs allowance for up to 35 sophisticated non-accrediteds under 506[b]); solicitation stance (public vs private); Form D timeline (EDGAR credentials, draft filed, clock set to 15 calendar days after first sale); and a state notice matrix showing which states require filings/fees, who files them, and deadlines. Add a one-page appendix defining “first sale,” who signs, and evidence kept. - Marketing & verification policy (2 pages + checklist).
If 506(c): detail reasonable-steps-to-verify procedures (third-party service or in-house), acceptable documents (CPA/attorney letters, W-2s, K-1s, brokerage statements), re-verification for later closes, retention periods, and approval workflow.
If 506(b): define “no general solicitation,” internal review for public appearances/posts, press handling, and pre-existing-relationship documentation. In both cases, map every channel (events, podcasts, social, website) to an internal control.
EU (AIFMD / NPPR / ELTIF)
Passport plan (slide + 1-pager).
State AIFM/AIF perimeter, target Member States, current authorisation status, and a gap-assessment for AIFMD II with the 16 April 2026 transposition date (and any follow-on reporting changes). Show roles: AIFM, depositary, administrator, auditor.
NPPR matrix (counsel-led spreadsheet).
Country-by-country tabs with: filing forms, timing, fees, ongoing reporting, reverse-solicitation posture, and local counsel contacts. Add a status column (filed/pending/approved) and renewal dates.
ELTIF 2.0 pack (operations first, then legal).
A redemptions calendar (e.g., quarterly dealing days), notice/gate parameters, chosen Liquidity Management Tools (LMTs), transfer-matching and disposal criteria, and a cost-disclosure summary, all cross-referencing the ELTIF 2.0 RTS. Include distributor/depositary confirmations and investor-communications templates (FAQ/KID, if applicable).
How to Fundraise Your First Fund in 2025
Defining Your Investment Thesis
LP Targeting: Family Offices to Fund-of-Funds
Building Your Sourcing Edge
Running Your Fundraising Process
Fund Structure: 506(b), AIFMD & ELTIF
First Close: Funnel & Metrics
US Marketing Rules & SEC Compliance
The Final Close Checklist
EU Fundraising Routes
LP Reporting & Communication
Building Your LP Data Room & DDQ
Secondaries & Continuation Funds