A Guide to VC Structures and Stakeholders

At a Glance

• Venture capital funds are typically structured as limited partnerships, with a general partner (GP) managing the fund and limited partners (LPs) providing capital.

• Supporting entities usually include a separate management company, which employs the team and receives management fees, and a GP entity, which holds decision-making authority and carries liability.

• Capital is contributed as capital commitments and drawn down over time through capital calls during the investment period, rather than paid in full upfront.

• This structure is designed to balance liability protection, governance, and economics, while improving metrics like IRR by avoiding idle cash.

• Understanding how the fund, GP, LPs, and management company interact is foundational for first-time fund managers and emerging LPs evaluating a venture fund.

What Is a VC Fund?

A venture capital (VC) fund is a private investment vehicle that:

• Pools capital from multiple investors (LPs).

• Deploys that capital into privately held companies, typically early- or growth-stage.

• Is managed by a general partner (GP) following a defined strategy and mandate.

From a regulatory perspective, a venture capital fund is often structured to fit within specific exemptions (for example, under the Investment Company Act and the Advisers Act), including requirements around:

• Holding itself out as pursuing a venture capital strategy.

• Investing primarily in equity or equity-like instruments (often at least 80% in “qualifying” venture investments).

• Avoiding significant leverage.

• Issuing interests that are illiquid and generally not redeemable on demand.

Investors’ commitments to the fund are called capital commitments. In exchange, they receive an ownership interest in the fund and a pro rata share of any distributions.

Capital Commitments and Capital Calls

Rather than funding their entire commitment upfront, LPs typically:

• Sign a subscription agreement and commit a specific dollar amount to the fund.

• Fund that commitment over time through capital calls (also known as drawdowns).

Key concepts:

• Investment period: The defined period (for example, 3–5 years) during which the GP is authorized to make new investments and call capital for those investments.

• Capital calls: Notices sent by the GP requesting a portion of each LP’s commitment to fund investments, fees, and expenses.

This structure:

• Reduces the amount of time LP capital sits idle.

• Helps optimize the fund’s internal rate of return (IRR) by starting the “clock” only when capital is actually deployed.

IRR is often viewed as a more nuanced performance metric than a simple multiple because it incorporates both magnitude and timing of cash flows.

Core Entities and Stakeholders

Although people often refer to “the VC” as if it were a single entity, a typical venture structure involves several distinct but related entities and roles.

The Fund

The fund is usually organized as a limited partnership (often a Delaware LP) or, in some cases, an LLC. It:

• Holds the portfolio investments.

• Admits LPs and the GP as partners or members.

• Is governed by a Limited Partnership Agreement (LPA) or LLC Agreement (LLCA) that sets out economic terms, governance, and investment parameters.

The fund itself is the entity into which LPs make capital commitments and from which they receive distributions.

General Partner (GP)

The general partner (GP) is the entity with legal authority to manage the fund. In practice:

• The GP is often a separate LLC (for example, “Fund I GP, LLC”) formed to limit liability.

• It has the power to:

  • Make and manage investments.

  • Sign contracts on behalf of the fund.

  • Oversee regulatory and tax filings.

Key points:

• LPs grant broad discretion to the GP, but the LPA sets boundaries, often based on:

  • Stage (seed, early, growth).

  • Industry or sector focus.

  • Geography or specific strategy.

• Despite holding decision-making authority, the GP typically contributes a small portion of capital (for example, ~1% GP commit), which is still meaningful and aligns incentives.

There are no special licenses required solely to be a GP of a venture fund, but GPs must ensure their structure complies with applicable securities, adviser, and tax regulations.

Limited Partners (LPs)

Limited partners (LPs) are the investors in the fund. They typically include:

• High-net-worth individuals and family offices.

• Institutional investors such as endowments, foundations, funds of funds, and pensions.

• Corporate or strategic investors.

LPs generally:

• Contribute the vast majority of capital (for example, 99% of commitments).

• Receive priority in the distribution waterfall (return of capital and share of profits).

• Have limited liability, typically capped at their commitment.

LP rights are primarily economic, not operational. They usually:

• Do not participate in day-to-day decision-making.

• Rely on the GP’s expertise, track record, and thesis.

LPs often expect the GP to have “skin in the game” via a GP commitment, especially for first-time managers. For many emerging managers, that track record is built through:

• Personal angel investments.

• Syndicates and SPVs.

• Operational or investing roles at other firms.

Management Company

While the GP is the legal decision-maker for the fund, the management company is typically the entity that:

• Employs or contracts with the investment team and support staff.

• Receives management fees from the fund in exchange for advisory and management services.

• Houses the broader business operations of the venture firm.

Common features:

• Structured as an LLC (for example, “Manager, LLC”).

• Enters into an Investment Management Agreement with the fund and GP.

• Uses management fees to pay salaries, rent, software, and other operating expenses.

Team members who contribute to the investing function, such as partners, principals, and associates, may receive a share of the fund’s carried interest, often subject to vesting and internal carry allocation policies.

How These Pieces Work Together

In a traditional closed-end fund structure:

1. LPs commit capital to the fund.

2. The GP entity manages the fund and makes investment decisions, subject to the LPA.

3. The management company executes the day-to-day work of sourcing, diligencing, and supporting investments, funded by management fees.

4. When investments generate proceeds, the fund distributes capital back to LPs and the GP according to the agreed waterfall.

This separation of roles:

• Helps align incentives between GPs and LPs.

• Clarifies who does what (legal authority vs. operational execution).

• Provides liability protection and regulatory flexibility when structured correctly.

Over time, new structures (such as rolling funds, evergreen funds, syndicates, and other vehicles) have emerged. But the core concepts of:

• A pooled vehicle (the fund),

• A decision-making body (the GP),

• Capital providers (LPs), and

• An operating entity (the management company),

remain central to most venture strategies.

How Sydecar Structures Funds and SPVs

While many traditional venture funds are organized as standalone limited partnerships, Sydecar uses a Series LLC structure under the hood to form SPVs and certain fund vehicles. A single “master” LLC can host multiple distinct series, each treated as a separate vehicle for liability and recordkeeping purposes. This approach keeps formation fast and cost efficient for emerging managers while preserving clear separation between deals. For a deeper dive into how this works in practice, see our guide, Understanding the Series LLC.

Key Takeaways for Emerging Managers and LPs

Understanding the basic structure and stakeholders of a venture fund is a prerequisite for engaging with the asset class, whether you are launching a fund or considering becoming an LP.

For emerging managers, this framework helps you:

• Design a fund structure that fits your strategy and investor base.

• Communicate clearly with prospective LPs about roles, responsibilities, and economics.

• Prepare for downstream topics like fees, carry, and regulatory obligations.

For LPs, it provides:

• A clearer picture of who is making decisions and how they are compensated.

• Context for evaluating GP alignment, governance, and fund terms.

From here, deeper dives into economic terms and regulatory considerations will help round out your understanding of how venture funds are formed, governed, and managed over their full lifecycle.