This is not your father’s venture capital fund.

Thanks to an atypical legal structure, the GRA Venture Fund—which recently raised $18.75 million in its first round of fundraising—can operate with a lower cost structure, offer investors state tax credits and offer more hands-on management by board members.

The GRA Venture Fund is part of the Georgia Research Alliance and its program designed to let the state partner with private investors to provide early-stage financing to start-up companies that grow out of the research and inventions created by the state’s universities. Its focus is on technology projects, with a likely emphasis on vaccines, according to David S. Phillips [photo, below right], a partner at Jones Day who, along with colleagues Milford B. Hatcher Jr. and John E. Zamer, advised both GRA and the fund.

But while funds such as this are not unique—other states, including Florida, have them, too—from a legal standpoint, said Phillips, “It’s really a different sort of animal.”

Unlike a typical venture capital fund, according to Phillips, the GRA Venture Fund has no general partner and no carried interest. In a typical fund setup, the general partner manages the fund and raises money for it in exchange for a 20 percent cut of the profits, referred to as carried interest.

To avoid those costs, Phillips said his team structured the fund as a limited liability company, or LLC, rather than as the more typical limited partnership.

The fund doesn’t need a general partner, he said, because the GRA will provide needed administrative, accounting and back-office support at no cost. Also, because the GRA already has a program, called VentureLab, designed to commercialize university research and inventions, the new fund’s goal is to provide a financial bridge for new companies coming out of VentureLab before they’d be mature enough to attract traditional venture capital. The GRA Fund money means there’s no need to hire a general partner to go out and chase more funds, Phillips said.

Also, the LLC structure means that management decisions typically made by the general partner will instead be made by a board comprised primarily of representatives of the investors, he said. The LLC allows board members to actively manage the fund without jeopardizing their limited liability—something that would be at risk if they participated in active management under a limited partnership structure.

“The fund is also a little unique in that the state Legislature passed state income tax credits for investors investing in the fund,” Phillips said. He explains that the providers of the first $30 million to the fund will get a 25 percent, or $7.5 million, state tax credit. There’s also a smaller credit for those who invest in any of the portfolio companies created through VentureLab and the fund.

The tax credits presented yet another legal twist, Phillips said, because many of the fund’s investors—which include Georgia Tech, the Medical College of Georgia and Georgia State University—already are tax exempt.

To avoid using up the available $7.5 million in tax credits with funds from investors who can’t benefit from the credits, Phillips said his team created a parallel fund for tax-exempt investors, allowing only those who can use the exemption to invest in the main fund.

Some of those main fund investors, who also serve on the board or as trustees, include: David Ratcliffe, an attorney who is chairman and CEO of Southern Co.; F. Duane Ackerman, a former BellSouth Corp. chairman and CEO; and Frederick E. Cooper, a former Jones Day lawyer and executive at Flowers Industries who is a longtime leader in the business and Republican communities in Georgia.

Phillips said the fund’s legal structure also was crafted to meet the requirements of the state’s seed capital statute. So far, Phillips said, the state’s seed capital fund has invested $7.5 million, assisted by a team of Bryan Cave-Powell Goldstein lawyers led by Frank A. Crisafi and Riccarda N. Heising.

The goal, Phillips said, is to attract three times the state’s investment from the private sector. Coupled with the tax credits, the fund has the potential to provide more than $100 million in venture financing and to invest in a wide variety of technologies and inventions.

“This was not a plain vanilla deal,” Phillips said.