Side letters in a fund raise and where to keep them
A side letter changes or adds to the LPA terms for one LP: fee breaks, reporting, excuse rights, LPAC seats, MFN rights. Keep each letter in a folder only that LP and your counsel can open, keep a compendium of every term granted, and run the MFN election process from that compendium after the final close.
Folder index
- 01 Template letter GP standard side letter and the list of terms the GP will and will not grant.
- 02 LP request log Requests per LP with status, owner and draft version, counsel only.
- 03 Per-LP folders Drafts and signed letter for each LP, visible to that LP and counsel.
- 04 Regulatory terms ERISA, public pension and sovereign investor provisions grouped by type.
- 05 MFN compendium Anonymized summary of granted terms by size tier, prepared after final close.
- 06 MFN elections Election forms returned by each eligible LP, with the dates received.
- 07 Obligations register Every reporting, notice and consent duty from all letters, with owners.
How this raise works
Large and early LPs ask for side letters in most institutional fund raises. Typical requests include a fee discount for size or timing, an LPAC seat, extra reporting, the right to be excused from investments that breach its policies, transfer rights, confidentiality carve-outs for public records laws, and tax or regulatory terms. Benefit plan investors under ERISA and governmental plans have their own standard asks.
Most fund LPAs or side letters include a most favored nation clause. After the final close, counsel prepares a compendium of terms granted to other LPs, and each LP with MFN rights may elect terms granted to investors of the same or smaller size, subject to carve-outs. The compendium is sensitive: it shows what each LP negotiated, usually without names.
Mistakes here are expensive. A GP that forgets a reporting or notice term it agreed to is in breach of contract with an LP it wants in the next fund. A searchable record of every obligation, kept next to the signed letters, matters as much as the negotiation.
Best data rooms for this raise
The 16 rooms re-ranked with this raise's weights. Permission control carries the most weight here.
- Investor tracking 19%
- Permission control 30%
- Raise workflow 23%
- Investor onboarding 14%
- Cost of a raise 15%
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Folder index for the room
A starting index for this raise. Number the folders so the order survives exports and investors can cite them in questions.
- 01 Template letterGP standard side letter and the list of terms the GP will and will not grant.
- 02 LP request logRequests per LP with status, owner and draft version, counsel only.
- 03 Per-LP foldersDrafts and signed letter for each LP, visible to that LP and counsel.
- 04 Regulatory termsERISA, public pension and sovereign investor provisions grouped by type.
- 05 MFN compendiumAnonymized summary of granted terms by size tier, prepared after final close.
- 06 MFN electionsElection forms returned by each eligible LP, with the dates received.
- 07 Obligations registerEvery reporting, notice and consent duty from all letters, with owners.
- 08 Executed LPAFinal LPA and amendments, as the base the side letters modify.
Features this raise needs
| Feature | Why | Ellty | iDeals | Datasite | Ansarada | Intralinks | Firmex |
|---|---|---|---|---|---|---|---|
| View-only files | Files can be read but not saved or printed, and the setting can change mid-raise without a new invite. | ||||||
| Investor activity log | A per-investor record of opens, pages and minutes, which tells the IR team who is in diligence and who stalled. | ||||||
| Dynamic watermarks | Stamps the reader and a timestamp over every page, so a PPM that leaks carries its source with it. | ||||||
| NDA e-sign step | Confidentiality terms an investor must accept in the room before folder one appears. | ||||||
| 2-step verification | A code or an approval on a second device every time someone logs in. |
Setting up the room
- 01
Publish your standard terms
Share a template letter early so LPs mark up one document instead of drafting from scratch.
- 02
Lock each LP folder
Give every LP its own folder with view-only drafts and no sight of other investors' terms.
- 03
Log every request
Record each ask, the response and the version, so the deal team and counsel agree on what was granted.
- 04
Build the compendium
After final close, list granted terms by size tier with names removed, and share it with MFN holders only.
- 05
Track elections and duties
Collect MFN elections in the room, then move every agreed obligation into a register with a named owner.
Common mistakes
- Storing all signed side letters in one folder that several LPs can open.
- Granting a fee break without checking which MFN holders can then elect it.
- Forgetting a bespoke reporting term until the LP asks why it is missing.
- Compendium drafts that still show LP names.
Calculators for this raise
Or take the four-question quiz and check the raise checklist.
Questions and answers
What is a side letter in private equity?
A separate agreement between the GP and one LP that changes or adds to the fund terms for that LP, such as fees, reporting, excuse rights or an LPAC seat.
How does an MFN clause work?
An LP with most favored nation rights can elect terms granted to other LPs, usually those of the same or smaller commitment size, after the GP shares a compendium of granted terms. Carve-outs often exclude regulatory or LPAC terms.
Can LPs see each other's side letters?
Not as signed documents. MFN holders see an anonymized compendium. Public pension LPs may have to release some terms under records laws, which is why letters often address confidentiality.