What is an LP?
Limited partners are the investors in a VC fund. They commit capital, pay fees, and receive returns, but don't choose which startups to invest in. That's the GP's job.
Types of LPs
Pension funds, endowments, foundations, family offices, fund-of-funds, sovereign wealth funds, and high-net-worth individuals. Different LPs have different return expectations and time horizons.
LP-GP Relationship
LPs trust GPs to deploy capital wisely. They conduct due diligence before committing, receive quarterly reports, and can influence future fund raises through their continued support or withdrawal.
Formula
Typical LP commitments:
- Institutional (pension, endowment): $25M-$100M+
- Family office: $5M-$25M
- High-net-worth individual: $1M-$10M
- Fund-of-funds: $10M-$50M
Example
VC raises Fund III:
- University endowment: $30M (15%)
- State pension fund: $40M (20%)
- Two family offices: $20M each (20%)
- Fund-of-funds: $25M (12.5%)
- Various individuals: $65M (32.5%)
Total: $200M fund. LPs are passive; GP makes all decisions.