Fund Mechanics
How venture capital funds operate — fund vintages, carry, and the language of LPs and GPs.
19 terms
Beginner
Intermediate
Carried Interest (Carry)
The GP's share of fund profits, typically 20%, which is their primary compensation incentive.
Dry Powder
The amount of committed but uninvested capital a VC fund has available to deploy.
Follow-On Investment
Additional capital a VC invests in a company in later rounds to maintain or increase their stake.
General Partner (GP)
The managing partner(s) of a VC fund who make investment decisions and manage the portfolio.
Limited Partner (LP)
An investor who provides capital to a VC fund but has no management role.
Management Fees
The annual fee (typically 2% of fund size) VCs charge LPs to cover operating costs.
Markdown
A decrease in the estimated value of a fund's investment, often after a down round or market shift.
Markup
An increase in the estimated value of a fund's investment, usually after an up round.
Private Equity (PE)
Investment firms that buy established companies, often using debt, to improve and resell them.
Write-Off
When a VC marks an investment value to zero, effectively declaring it a total loss.
Advanced
Capital Call
When a GP requests LPs to send a portion of their committed capital to fund investments.
DPI (Distributions to Paid-In)
The ratio of cash returned to LPs relative to total capital they invested; the realized return.
Fund of Funds
A fund that invests in other VC or PE funds rather than directly in companies.
Fund Vintage
The year a venture capital fund started investing, used to compare performance across time periods.
IRR (Internal Rate of Return)
The annualized rate of return on an investment, accounting for the timing of cash flows.
Key Person Clause
A fund provision that pauses investing if specified key partners leave the VC firm.
MOIC (Multiple on Invested Capital)
The simple multiple of how much an investment returned relative to the amount invested.
TVPI (Total Value to Paid-In)
The ratio of total fund value (realized + unrealized) to capital invested; includes paper gains.
Other categories
Definitions are intended as plain-English educational summaries. Not legal, tax, or investment advice.