The Business of Venture Capital, 3rd Edition

15Terms of Fund Investment: The Limited Partnership Agreement

A typical fund-offering document, called the private placement memorandum (PPM), includes the fund's investment strategy, the fund manager's background and expertise, and market opportunity. The fund's limited partnership agreement (LPA) is the document that contains legal terms that describe the fund control mechanics, management, investment, and distribution of returns.

“Terms are important but seldom the primary drivers of investment decisions. As they say, terms never make a poor firm look good nor make a good firm unattractive,” says Kelly Williams, managing director and head, Customized Fund Investment Group, Credit Suisse Fund of Funds.

KEY TERMS

A short summary of key terms is usually included in the fund documents and is presented here in Exhibit 15.1.

The highly negotiated terms between any investors and fund managers are defined in Exhibit 15.2.

The various financial and governance terms in a fund are structured to meet the goals of both investors and fund managers, as shown in Exhibit 15.3.

Exhibit 15.1 Key Fund Terms.

Fund size	$100 million
Commitments	Institutions: $5 million minimum Individuals: $1 million.
Investment size	Approximately $1,000,000 to $2,500,000 per initial investment. Maximum investment per company capped at 10% of the fund or $10,000,000.
Fees	2.5% reducing by 0.5% each year after year 5
Industry focus	Technology (enterprise, consumer, security) and digital health ...