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Out of curiousity - how does a VC fund hold onto "powder"? Do they have terms to invest in a liquid fund, or some other arrangement? Seems like they'd face toug
by lumost 3y ago
Out of curiousity - how does a VC fund hold onto "powder"? Do they have terms to invest in a liquid fund, or some other arrangement? Seems like they'd face tough returns if they held powder for long.
- AndrewKemendo 3y agoI don’t have enough experience at the institutional level to tell you precisely. At the smaller scale, though it just means that returns that were above and beyond distribution expectations so, for example, what the fund returns separate from the LP distribution, and then separate from distributions to partners is you know basically that net margin for the fund overall so that they would use as seeds for another fund or something like that. So effectively they are just not opening other fund lines, because none of the investments or markets that are coming up, match a risk profile for the amount of interest you can get back in other methods now.
- whiterknight 3y agoHold treasuries?
- pcl 3y agoTypically, VC funds don't have much cash on hand, and when they make an investment, they issue a capital call to the limited partners (LPs) in the fund. The LPs then are on the hook to send money for the investment, typically within a week or two. So, a $100M VC fund is really a commitment by the LPs to wire $100M over the course of ~5-8 years. LPs do all sorts of different things to manage the money they've committed but not yet invested.
- MichaelZuo 3y agoIt's much like a miniature version of the World Bank or other MDBs.