Fund Mechanics Intermediate

Limited Partner (LP)

An investor who provides capital to a VC fund but has no management role.

Definition

Limited partners are the investors who commit capital to a venture capital or private equity fund. LPs include pension funds, university endowments, sovereign wealth funds, foundations, family offices, and high-net-worth individuals. LPs provide the money but do not make investment decisions; that is the GP's job. In exchange for limited involvement, LPs have limited liability (they can only lose what they invested).

Why it matters

LPs are the ultimate source of capital that funds your company. Their expectations (typically 3x+ returns over 10 years) drive VC behavior, including the push for large exits. If LPs pull back from VC (as in market downturns), less money flows to startups.

Example

The Yale Endowment commits $50M to a $500B VC fund as an LP. Over 10 years, they receive $150M back (3x return). The LP had no say in which startups the fund invested in; they trusted the GP's judgment.

Related terms

General Partner (GP)
The managing partner(s) of a VC fund who make investment decisions and manage the portfolio.
Venture Capital (VC)
Professional investment firms that fund high-growth startups in exchange for equity.
Capital Call
When a GP requests LPs to send a portion of their committed capital to fund investments.
Carried Interest (Carry)
The GP's share of fund profits, typically 20%, which is their primary compensation incentive.
Management Fees
The annual fee (typically 2% of fund size) VCs charge LPs to cover operating costs.
Fund of Funds
A fund that invests in other VC or PE funds rather than directly in companies.
DPI (Distributions to Paid-In)
The ratio of cash returned to LPs relative to total capital they invested; the realized return.

More from Fund Mechanics

This definition is an educational summary. It is not legal, tax, or investment advice. Specific terms in your equity grant or company documents may differ.