#The GP/LP Structure — Where a VC's Money Actually Comes From
A venture fund is made up of a GP and its LPs. The GP, or general partner, is the entity that manages the fund and carries unlimited liability. This is the management firm we usually just call 'the VC.' LPs, or limited partners, are the fund's capital sources, entities like the government fund-of-funds, the Korea Development Bank, pension funds, and large corporations, whose liability is capped at what they committed. The investment professional a founder meets works for the GP, and most of the money they are deploying came from those LPs.
| Party | Role | Liability | Examples |
|---|---|---|---|
| GP | Manages the fund, makes investment decisions | Unlimited liability, obligated to co-invest | VC firms, LLCs, tech-investment firms, accelerators |
| LP | Commits capital to the fund | Limited to the amount committed | Government fund-of-funds, development banks, pension funds, large corporations |
#An 8-Year Fund, a 4-Year Investment Period — What It Means for You
A standard Korean venture fund runs for 7 to 8 years, with a new-investment window that is typically half of that, 4 years. The remaining 4 years go toward follow-on investments, portfolio management, and exits. This is why the same VC's appetite for new deals looks completely different in year 1 of a fund versus year 4.
| Point in Fund Life | New Investments | VC's Posture |
|---|---|---|
| Years 0–1 | Getting started | Cautious, selective about deals one and two |
| Years 1–3 | Most active | Aggressively pursuing new deals |
| Years 3–4 | Deadline approaching | Deploying remaining capital aggressively |
| After year 4 | Almost none | Focused on follow-on, management, and exits |
#Management Fees and Carried Interest — How a VC Actually Makes Money
A GP earns money in two ways. The management fee is essentially an operating budget, a set percentage of the fund's total committed capital paid out every year. Carried interest is a share of the profit above a hurdle rate. The management fee covers running the fund; the real payday comes from carried interest. That is why a GP fixates on landing a big-multiple exit.
- Management fee — a set annual percentage of committed capital, covering salaries, rent, and audit costs
- Carried interest — a set percentage, for example 20%, of the profit above a hurdle rate, for example 6% annually
- Implication — a GP's real earnings come from a big multiple, not from an average result
- Implication — that is why a GP bets on the possibility of a 10x return over a safe 1.5x
#The Math of Venture Capital — One Home Run Saves the Fund
Venture capital is built on the assumption that most bets fail. Statistically, more than half of VC investments lose money, and only a handful ever return 10x or more. Almost all of a fund's return comes from a small number of home runs. One early-stage investor's cumulative portfolio of more than 100 companies, where just 8 accounted for 80% of the total value, is a textbook illustration of this structure.
| Investor Type | Hypothetical Portfolio Outcome | Total Multiple | Source of Return |
|---|---|---|---|
| Early-stage | 4 companies profitable, 7 at zero | About 2.8x | One 20x+ deal drives two-thirds of the return |
| Mid-stage | 6 companies profitable, 5 at a loss | About 2.3x | One 10x+ deal returns most of the principal |
| Late-stage | 11 companies profitable, 1 at a loss | About 1.7x | Most return 1.5x+, with small variance |
#IRR vs. Multiple — Why LPs Push for a Fast Exit
LPs favor a fast exit and a high IRR, or internal rate of return. For the same company, doubling in 1 year versus returning 10x in 5 years favors the latter on multiple, but favors the former on IRR. When LPs judge performance primarily on IRR, GPs feel pressure to delay capital calls and pull exits forward to boost their IRR.
| Scenario | Multiple | Timeframe | IRR Perspective |
|---|---|---|---|
| Fast exit | 2x | 1 year | Very high IRR — what LPs favor |
| Long-term home run | 10x | 5 years | Wins on multiple, relatively lower IRR |
#How Understanding This Structure Changes Your Negotiation
Once you understand the GP/LP structure, fund maturity, and how VCs actually get paid, the same rejection and the same pressure read differently. You are negotiating with the fund structure behind the person, not just the individual across the table.
- Reading a rejection — 'not the right stage' may be about the fund's remaining life, not solely your company
- Choosing targets — prioritize funds in years 1 to 3 of their life
- Follow-on likelihood — a fund with more runway left is better positioned to commit to your follow-on round
- The multiple narrative — spell out 'why 10x' explicitly in your pitch, speaking directly to how the GP gets paid
- Exit alignment — work out, in advance, where your company's long-term vision might conflict with the fund's return deadline
#Self-Check — Have You Factored Fund Structure Into Your Negotiation?
- Have you checked your target VC's fund formation date and remaining life?
- Does your pitch explicitly make the case for 10x growth potential, the 'why 10x'?
- Have you checked follow-on likelihood against each fund's remaining life?
- Are you aware of where your company's long-term vision might conflict with a fund's return deadline?
- Do you separate rejection reasons into company issues versus fund-structure issues?
- Do funds in years 1 to 3 of their life make up a sufficient share of your target list?
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