4 ms·

There are LPs and LPs. The LPs which the user above refers to are the APGs, the PFZWs type.

jacquesm 4y ago
Show me a contract where an LP gets to renege penalty free on their obligations to a VC and I'll be happy to believe you. I have been part of 222 VC/PE deals to date (that's not a typo, just a coincidence) and not once has an LP reneged on their obligation to honor a capital call without penalty. That's not saying it doesn't happen, it may well happen, or it may have happened and it was kept so quiet that nobody picked up on it (which is somewhat believable, because it would reflect very badly on the fund). Just to give you one example: a VC enters into a deal, signs a non-binding terms sheet conditional on doing DD, goes through a full DD and then has to back out of the deal because a large LP does not honor their commitment. The fall out from that would be massive. What is far more likely to happen is that a VC can't find a good way to spend the funds committed capital. In that case there might be extensions of the funds run or they might end up simply not calling up the available capital. This I've seen a couple of times. But an LP that refuses a capital call I've yet to see. I've even seen an estate that was held to perform when an LP ended up with the very best reason for non-performance of all.
- Bubble_Pop_22 4y ago
  I understand all the above, but the general rules kinda supercede it all.The general rules are that when you are the best/biggest thing around the block, rules just don't apply to you. Also in general when government is involved rules don't apply to it. 80% or more of the amount of money that LPs as a whole administer are either Govt. Pension Funds or SWFs. So in the case of big LPs it's one of the rare cases where both the above rules are at play to give them carte blanche.
  - jacquesm 4y ago
    LPs in a fund usually - possibly not always - have the same conditions except for the 'anchor' LPs, who are declared up front to the other LPs and who put in a substantially larger chunk of cash and commit before the fund is even officially opened. They are committed to do so and are listed in the rest of the documentation by name. Even the anchor LP agreements that I've seen do not allow those to default on their commitment, though there may be priority assignment in case of returns. Again, show me. Just. One. Contract. I'll be happy to read the whole thing even if it is 200 pages. Oh and just to be clear about this: if smaller LPs were on the hook for the full amount but larger LPs could walk at will how big do you think the chances are that those smaller LPs would still want to be part of such a fund? Because clearly if a large contributor has a reason to back out they may have an even better reason to do the same. Personally I would not invest in a fund where a larger LP can back out at will.
    - seibelj 4y ago
      You are confused because you think the contracts mean anything in such a world. The contracts are worth less than the paper they are printed on when push comes to shove and you are facing a whale.
      - jacquesm 4y ago
        We're talking about whales facing whales, think Elon Musk vs Twitter and believe me contracts mean everything in that world. There isn't an alternate reality where contracts are meaningless.
- junofan 4y ago
  > Just to give you one example: a VC enters into a deal, signs a non-binding terms sheet conditional on doing DD, goes through a full DD and then has to back out of the deal because a large LP does not honor their commitment. The fall out from that would be massive. Is this in Europe?

Show me a contract where an LP gets to renege penalty free on their obligations to a VC and I'll be happy to believe you. I have been part of 222 VC/PE deals to date (that's not a typo, just a coincidence) and not once has an LP reneged on their obligation to honor a capital call without penalty. That's not saying it doesn't happen, it may well happen, or it may have happened and it was kept so quiet that nobody picked up on it (which is somewhat believable, because it would reflect very badly on the fund). Just to give you one example: a VC enters into a deal, signs a non-binding terms sheet conditional on doing DD, goes through a full DD and then has to back out of the deal because a large LP does not honor their commitment. The fall out from that would be massive. What is far more likely to happen is that a VC can't find a good way to spend the funds committed capital. In that case there might be extensions of the funds run or they might end up simply not calling up the available capital. This I've seen a couple of times. But an LP that refuses a capital call I've yet to see. I've even seen an estate that was held to perform when an LP ended up with the very best reason for non-performance of all.

Bubble_Pop_22 4y ago
I understand all the above, but the general rules kinda supercede it all.The general rules are that when you are the best/biggest thing around the block, rules just don't apply to you. Also in general when government is involved rules don't apply to it. 80% or more of the amount of money that LPs as a whole administer are either Govt. Pension Funds or SWFs. So in the case of big LPs it's one of the rare cases where both the above rules are at play to give them carte blanche.
- jacquesm 4y ago
  LPs in a fund usually - possibly not always - have the same conditions except for the 'anchor' LPs, who are declared up front to the other LPs and who put in a substantially larger chunk of cash and commit before the fund is even officially opened. They are committed to do so and are listed in the rest of the documentation by name. Even the anchor LP agreements that I've seen do not allow those to default on their commitment, though there may be priority assignment in case of returns. Again, show me. Just. One. Contract. I'll be happy to read the whole thing even if it is 200 pages. Oh and just to be clear about this: if smaller LPs were on the hook for the full amount but larger LPs could walk at will how big do you think the chances are that those smaller LPs would still want to be part of such a fund? Because clearly if a large contributor has a reason to back out they may have an even better reason to do the same. Personally I would not invest in a fund where a larger LP can back out at will.
  - seibelj 4y ago
    You are confused because you think the contracts mean anything in such a world. The contracts are worth less than the paper they are printed on when push comes to shove and you are facing a whale.
    - jacquesm 4y ago
      We're talking about whales facing whales, think Elon Musk vs Twitter and believe me contracts mean everything in that world. There isn't an alternate reality where contracts are meaningless.
junofan 4y ago
> Just to give you one example: a VC enters into a deal, signs a non-binding terms sheet conditional on doing DD, goes through a full DD and then has to back out of the deal because a large LP does not honor their commitment. The fall out from that would be massive. Is this in Europe?