ABSTRACT
In 2015, a group of entrepreneurs pooled their money together for the purpose of investing in other businesses. The entrepreneurs could have undertaken this activity through a traditional venture capital firm, but they wanted to cut out the middle-man, reduce fees, and retain more control over their capital, so they chose to undertake their investing on their own. The group of entrepreneurs chose not to form an entity. Instead, they attempted to limit their business and liability risk by conducting their activity entirely via software. Unfortunately, the software contained a bug, and an insider siphoned off millions of dollars belonging to the fund. When affected investors started wondering who they could sue, some pointed out that by choosing not to form an entity, the would-be venture capital fund probably defaulted to a general partnership. Meanwhile, the US Securities Exchange Commission opined that the investment tool the entrepreneurs used to contribute funds to the venture via software were probably investment contracts and subject to securities laws …
Reyes, Carla and Hurt, Christine, The Contractarian Joint Venture (February 26, 2024).
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