The Roles of General Partners and Limited Partners in Venture Capital | VENTURE360

General Partner (GP) in Venture Capital

A general partner (GP) in venture capital is a professional responsible for managing a private equity fund or private capital fund. GPs pool investment money from institutions and high-net-worth individuals to fund growing businesses. These professionals are skilled in performing analytical work, appraising business models, and analyzing industry trends. They also assist companies in the fund's portfolio to ensure smooth operations and growth.

Responsibilities of General Partners

Raising Capital: GPs are tasked with raising capital from investors. This involves telling a compelling story to potential financiers to convince them to commit capital to the fund. Finding Investments: GPs source deals and invest the fund's money in promising opportunities. They conduct thorough due diligence before investing in a new venture. Operational and Legal Responsibilities: GPs oversee the performance of portfolio companies, provide support to these companies, and fulfill legal and operational obligations such as tax reporting and financial reporting.

Limited Partner (LP) in Venture Capital

A limited partner (LP) in venture capital is a third-party investor who provides investment commitment to venture capital funds. LPs include accredited investors, financial institutions, insurance companies, pension funds, foundations, and corporate pension funds. LPs are considered passive investors but may sometimes provide advice and opinions on future ventures. Responsibilities of Limited Partners Providing Investment Commitment: LPs commit capital to the fund and must meet capital calls on time. Understanding Partnership Agreements: LPs must understand and comply with the terms of the partnership, including limited partnership agreements (LPA), private placement memorandum (PPM), and subscription documents.

Profit Sharing Between GPs and LPs

In successful investments, profits are generated through "liquidity events" such as IPOs, acquisitions, or share buybacks. These profits are typically split 80/20, with 80% going to LPs and 20% as "carried interest" to GPs. Additionally, GPs receive management fees, typically 2% of the fund's invested capital. In conclusion, general partners and limited partners play crucial roles in venture capital, with GPs managing the fund and making investment decisions, and LPs providing capital and sharing in the profits.