Limited partners (LPs) are the investors behind the investors. When a VC firm announces a $200M fund, that money comes from LPs — the firm's general partners typically contribute only 1–5%.
Who LPs are
- University endowments — Yale's endowment pioneered heavy venture allocation
- Pension funds — public and corporate retirement systems
- Funds of funds — vehicles that diversify across many VC funds
- Family offices — private wealth of ultra-high-net-worth families
- Sovereign wealth funds — state-owned investment vehicles
- Insurance companies, foundations, and wealthy individuals
How the relationship works
LPs sign a limited partnership agreement (LPA) committing capital for the fund's life — usually 10 years plus extensions. Capital is not wired upfront; GPs issue capital calls as they make investments. Returns flow back through distributions when portfolio companies exit.
What LPs care about
- DPI (distributions to paid-in capital) — cash actually returned; the metric that matters most
- TVPI / MOIC — total value (realized + unrealized) versus invested capital
- IRR — time-weighted returns
- Consistency of access — getting into the best managers' next funds
Why founders should care
LP dynamics shape VC behavior. A GP struggling to raise their next fund gets conservative; a firm flush from a fresh close deploys quickly. When your investor pushes for an exit or a markup-friendly financing, LP reporting cycles are often the reason. Some LPs — especially family offices — also invest directly in startups, making them a source of later-round capital.