Core Architecture
Fund Mechanics
Founders pitch the GP. But the GP answers to the LP. Understanding the fund structure explains why VCs behave the way they do.
The 10-Year Clock
A standard venture fund is structured as a Limited Partnership with a 10-year life (often with two 1-year extensions). The GP does not have all the money upfront. They issue capital calls to LPs when an investment is made.
The Investment Period
The first 3-5 years of a fund's life are the "investment period". During this time, the GP is deploying initial checks. If you are pitching a fund in year 4 of its investment period, they are highly motivated to deploy capital quickly.
Recycling Fees
GPs charge a management fee (usually 2% annually on committed capital during the investment period). This creates a "fee drag". To return 1x to LPs, a $100M fund must actually generate ~$115M in returns, because $15M went to fees. Top-tier funds often "recycle" early exit capital to invest a full 100% of the committed capital.
The Reality of the 3x Target
Because venture is illiquid, LPs demand a high premium. A target return is 3x net DPI. Given the power law, the GP needs a few companies to return 50x-100x to compensate for the 65% of companies that go to zero.