What is a Capital Call?
A capital call (also called a drawdown) is when a GP formally requests that LPs transfer a portion of their committed capital to the fund. When an LP commits $10M to a fund, they don't wire it all upfront. Instead, the GP calls capital in tranches as needed to make investments, pay management fees, or cover fund expenses.
LPs typically have 10-30 days to fulfill a capital call.
How Capital Calls Work
When a GP finds a deal to fund, they issue a capital call notice to all LPs. Each LP wires their pro-rata share of the requested amount based on their commitment percentage.
Capital calls happen throughout the fund's investment period (usually the first 3-5 years). A fund might make 10-20 capital calls over its life, each drawing down 5-15% of total commitments.
Why LPs Don't Wire Everything Upfront
Capital efficiency. LPs manage portfolios across many funds and asset classes. Holding cash for a fund that won't deploy it for years means missed returns elsewhere. The capital call structure lets LPs keep their money invested until the GP actually needs it.
This also means LPs need to manage liquidity carefully. Missing a capital call can trigger penalties, forfeiture of existing fund interests, or forced sale of their position.
Why Founders Should Care
Capital calls affect deal timing. When a VC commits to your round, they still need to call capital from LPs before wiring funds. This usually adds a few days to closing. In rare cases with newer or smaller funds, LP liquidity issues can delay or complicate funding.
Understanding the capital call process also helps you appreciate why VCs care about fund economics and deployment pace. Every dollar they invest was called from LPs who expect it to be put to productive use.
Example
$100M fund with 20 LPs. GP finds a Series A deal requiring $5M:
- GP issues capital call for $5M (5% of fund)
- Largest LP committed $20M, owes $1M (5% of their commitment)
- Smallest LP committed $2M, owes $100K
- LPs have 15 days to wire funds
- GP aggregates capital and wires $5M to the startup
After this call, total drawn capital is $5M. Remaining callable capital (dry powder): $95M. Over the fund's life, GPs will issue additional calls until the full $100M has been drawn.