Capital Calls & Lines of Credit
LPs do not wire $100M on day one. Capital is drawn over time, which radically alters the IRR math.
The J-Curve
Because GPs call capital only when an investment is ready to close, funds experience a "J-Curve". In the first few years, the fund has negative returns because capital is being called to pay management fees and make investments, but no exits have occurred.
Subscription Lines of Credit (Capital Call Facilities)
In the modern VC era, GPs use subscription lines of credit to manipulate their Internal Rate of Return (IRR). Instead of calling capital from LPs (which starts the IRR clock immediately), the GP borrows money from a bank (like SVB or First Republic) to fund a startup.
They might let this debt sit for 6-12 months before issuing a capital call to LPs to pay off the bank. This artificially delays the start date of the LP's investment, artificially inflating the IRR by hundreds of basis points, even though the actual cash-on-cash return (DPI) remains exactly the same.