Key Person Clause
A fund provision that pauses investing if specified key partners leave the VC firm.
Definition
A key person clause is a provision in a VC fund's partnership agreement that suspends the fund's ability to make new investments if one or more named key partners depart the firm. This protects LPs who committed capital based on specific individuals' track records and judgment. If triggered, the fund enters a suspension period where LPs can vote on whether to resume investing, wind down, or take other action.
Why it matters
If the key partner at your company's VC firm leaves, the fund may lose its ability to make follow-on investments. This could mean your company loses a supportive board member and a committed follow-on investor at the same time.
Example
A fund's key person clause names two senior partners. When one departs, the fund is suspended for 90 days. LPs vote and decide to allow the remaining partner to continue investing, but the fund's follow-on strategy is scaled back.