Investing in Venture Capital

What Does a Limited Partner Do?

LPs provide the capital for funds to invest. In return, they hope for profits and, in some cases, access to information and future deals.
This is some text inside of a div block.
This is some text inside of a div block.


  • Limited partners (“LPs”) commit capital to a venture fund. 
  • LPs generally hold few obligations outside of funding their commitments.
  • Depending on the fund, LPs might gain valuable exposure to startups in the fund’s portfolio.
  • Understanding limited partner compensation and documents is key to building participation in a successful limited partnership.


Limited partners (“LPs”) are critical to the success of venture funds because they provide the capital that funds invest in deals.

LPs often wait years, even a decade or more, to see if the investments made with their capital produce returns. Along the way, they can gain valuable access to the startup ecosystem.

Aside from sending in their money on time, LPs typically carry few other obligations. This arrangement stands in stark contrast to the many roles and responsibilities of a general partner (“GP”) who manages the venture fund.

In this article, we’ll break down what a typical LP does, how they’re different from GPs, how they make money, and more.

What is a Limited Partner?

Limited partners invest in venture funds.

LPs commit a portion of their capital at the beginning of the venture fund, and the fund manager “calls” on additional capital from LPs as needed. Some GPs might call all capital up front. More commonly, GPs call capital in multiple tranches over a period of years until LPs have fully funded their commitments. 

As beneficial owners of the fund, limited partners receive dividends when the fund produces returns, in proportion to how much they invested. Just how much of the fund’s profits they share, and when they get it, is spelled out in their investment documents (more on this later).

Though the economics vary widely from fund to fund, an 80/20 split of the profits of a fund between LPs and GPs is common—with 80% going to the LPs and 20% going to the GP as carried interest. 

Here’s an example of how profits might get shared under this scenario: Let’s say you’re the sole LP in a $1M fund. The GP of the fund charges a standard 20% carry, which will get applied to any profits. If the fund returns $3M, then:

  • You get $1M (your initial investment) + 80% x $2M (profit) = $2.6M
  • The GP gets 20% * $2M (profit) = $400k

For more information on how this works, check out our guide on carried interest.

Who Can Become a Venture Capital Limited Partner?

Depending on how the fund is structured, you often must be an accredited investor or qualified purchaser to become an LP in a venture fund. 

To be an accredited investor, an LP must meet one of these requirements:

  • Have individual or joint net worth in excess of $1M (not including the value of a primary residence);
  • Have individual income in excess of $200k or joint income in excess of $300k for the two most recent years, with a reasonable expectation of reaching this level in the current year; or
  • Hold a Series 7, 62, or 65 license.

For an LP to be a qualified purchaser, they must meet the following requirements:

  • Have at least $5M of their own money in investments, or
  • Have at least $25M of their own money and/or other qualified purchasers’ money in investments.

For more background and detail on requirements for investing in venture funds, please see our guide to accredited investors and qualified purchasers.

What Does a Limited Partner Do?

An LP’s level of involvement in a fund can vary widely from fund to fund. Some GPs do little more than update their LPs on a regular basis, while others engage LPs more actively.

LPs of most any fund have two primary responsibilities: 

  • Funding their commitments, including any understanding all the provisions in the fund documents; and
  • Reviewing occasional LP updates from the fund’s GP.

Failing to send money when a GP makes a capital call can result in penalties to the investor, including a loss of part or all of their investment in the fund, and could hurt an investor’s ability to participate in future funds.

In some funds, a GP might engage their LPs more actively, such as calling for advice from time to time, especially if the LPs have relevant experience. In others, an LP might make introductions to help a company in the fund’s portfolio.  In these cases, the LP is usually going above and beyond what’s contractually required of them in their partnership agreement with the fund. 

How Do Limited Partners Earn Returns? 

LPs commit to providing capital knowing they may not see any returns at all. They may even lose everything they invest. Venture capital investing is notoriously risky.

If a venture fund does produce returns, it can take 7+ years for those returns to be realized and distributed to LPs. That’s how long it might take a portfolio company to see a so-called “liquidity event” (for example, an IPO, acquisition, or share buy-back). 

When a fund shares returns with LPs, it’s called a “distribution.” Some funds share distributions at certain milestones (for example, when one of the portfolio companies gets acquired, resulting in a return for the fund). Others may recycle early returns and re-invest the proceeds. The agreements LPs sign spell out those details.

Benefits to Being a LP

Aside from returns, benefits to becoming an LP might include:

  • Access to information. GPs may provide LPs updates on the companies the fund invests in. Beyond the legal and contractual requirements laid out in the fund’s governing documents, it’s up to the GP’s discretion to provide more information. An LP may negotiate additional contractual rights (for example, through a side letter), giving them access to more information or more frequent updates on portfolio companies.
  • Expanded network. Limited partners might develop relationships with other investors involved with the venture fund. In some cases, this could provide valuable access to future investment opportunities.

General Partner vs. Limited Partner

gp vs. lp comparison chart

In a venture fund, general partners and limited partners play very different roles.

GPs typically hold fiduciary duties to the fund. Additionally, they’re responsible for:

  • Setting up and managing the fund,
  • Raising the fund,
  • Making investments,
  • Managing investments,
  • Updating LPs, and
  • Sending out distributions.

In addition, GPs typically invest some of their own money into the fund, known as the “GP commitment.”

On the other hand, limited partners provide the capital for the fund but hold few other obligations. Their duties include:

  • Understanding their LP agreements, 
  • Committing capital,
  • Sending money on time, and
  • Voting on certain actions by the fund or its portfolio companies (varies by fund).

Limited Partnership Documentation

If you decide to become an LP, you’ll want to read and understand all documents you’re provided and follow through on the commitments they spell out.

Typical documents an investor in a venture fund receives include:

  • Limited Partnership Agreement (LPA). This document outlines the details of an LP’s investment in a fund, including the amount of capital committed, the time period of the commitment, how any distributions will be shared, any voting rights or obligations of the LPs, and other important information. The LPA is the primary governing document for the fund. 
  • Private Placement Memorandum (PPM). A PPM is a summary document that describes the investment opportunity and the risks associated with the opportunity. In venture, these documents might include details of the fund and its executive team, a description of the offering, regulatory disclosures, tax information, and a summary of any material agreements (like the LPA).
  • Subscription Document. This is the document an LP will sign in order to invest in a fund. These agreements outline the specifics of the LP’s investment into the fund and serve as the LP’s formal application to invest.

How Do LPs Find Funds?

GPs often find LPs in their own personal networks, including family, friends, former colleagues, founders and others. LPs can also find and invest into funds and syndicates run by GPs on AngelList. Visit our website to get started. 

Matthew Speiser
Writer, AngelList
Kate Bridge
Legal Counsel, AngelList
Maria LoPreiato-Bergan
LP Relations, AngelList
Jim Tomczyk
GP Relations, AngelList
Invest in Startups on AngelList
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