The other 80% of any profits are divided equally (pro-rata) among the limited partners who invested in the fund. They may also receive an annual management fee of up to 2% of the total capital invested. The general partners, who are also the private equity fund managers, usually get 20% of the profits as a performance incentive (often called a “carry”). Profits from the disposition of investments made in the various portfolio companies are split between the general partners and limited partners.
They may even serve as managers, advisors, or board representatives to the companies they invest in.
Limited partners are passive investors.Īll the partners have an ownership stake in the venture firm, but the general partners are actually hands-on. Limited partners may include insurance companies, pension funds, university endowment funds, and wealthy individuals, among others. Structure of a Venture Capital Firm (Fund)Ī venture capital fund is usually structured in the form of a partnership, where the venture capital firm (and its principals) serve as the general partners and the investors as the limited partners. For instance, a venture capital fund specializing in the healthcare sector may invest in a portfolio of ten companies focused on disruptive healthcare technologies and equipment. Venture capital funds are run similarly to private equity funds, where the portfolio of companies they invest in generally falls within a specific sector specialization. Institutional and individual investors usually invest in private equity through limited partnership agreements, which allow investors to invest in a variety of venture capital projects while preserving limited liability (of the initial investment). Private equity investments are equity investments that are not traded on public exchanges (such as the New York Stock Exchange ).
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