Here’s Everything You Need To Know About A General Partner

Here’s Everything You Need To Know About A General Partner

An individual or a group of individuals who manage a VC fund.

Who Is A General Partner?

In venture capital, a general partner (GP) is an individual or a group of individuals who are responsible for managing a venture capital fund. The GPs are experienced professionals with expertise in investment management, business development and entrepreneurship.

What Are The Roles And Responsibilities Of A GP?

Some of the core responsibilities of a GP are: 

  • Raising Fund On Behalf Of The VC: GPs conduct due diligence, interact with startups and scour for deals.
  • Finding Best Investment Bets: GPs are tasked to find the best investment opportunities, do thorough research on them and negotiate the ideal terms for the deals.
  • Keeping LPs Informed: GPs regularly update the LPs on how the fund is performing by providing updates on the portfolio startups, summarising the fund’s performance, organising annual meetings and more.
  • Guiding Portfolio Startups: Since GPs are involved in day-to-day operations, they regularly monitor how their portfolio startups are doing. They also offer industry expertise and industry connections to the founders of these startups.
  • Deciding On Follow-On Rounds: GPs have to decide whether to invest more money in companies during subsequent funding rounds or let their ownership in the company get diluted. This decision often depends on whether GPs have the right to maintain their ownership percentage.
  • Manage Fund’s Operations: GPs are responsible for taking care of the fund’s financial and tax reporting as well as handling other administrative tasks.

What Is The Difference Between A General Partner And A Limited Partner?

A general partner and a limited partner are distinct types of partners in a business partnership, each with unique roles, responsibilities, and levels of liability.

Everything You Need To Know About A General Partner
How Are GPs Compensated?

GPs can receive compensation through three primary methods:

  • Profit Share: GPs often receive a share of the partnership’s profits as compensation for their active involvement in managing the business and their work towards the success and profitability of the partnership.
  • Management Fee: In addition to profit sharing, GPs may be entitled to a management fee to compensate the GPs for their time, effort and expertise in running the fund. 
  • Carried Interest: Carried interest, also known as a performance fee, is a form of compensation commonly used by private equity or venture capital funds. GPs receive a share of the profits generated from the partnership’s investments as carried interest. This incentivises the GPs to generate high returns for the VC’s investors.

How Are Decisions Made Within A Partnership Where There Are Multiple GPs?

In partnerships with multiple GPs, decision-making can follow three frameworks: 

  • Partner Checkbook: This framework allows GPs to make independent decisions and write cheques at their own discretion. However, this may harm collegiality. 
  • Unanimous Decision Making: As the name implies, GPs are required to reach a consensus on deals, and at times, the veto power of other GPs can pose challenges to potential agreements. VCs may employ threshold vetoes in certain cases, particularly during follow-on funding rounds. This entails that if a predetermined number of GPs (as determined by the VC) vote against a deal, the fund will not proceed with it.
  • Complex Scoring: GPs evaluate investment opportunities. For this, they often consider multiple factors such as market potential, team quality, technology, competitive landscape, financial projections, and more. Complex scoring involves assigning weights or scores to each criterion to reflect its relative importance in the decision-making process.

How Do I Become A GP In A VC Fund?

To become a GP in a VC fund, you will need a combination of relevant experience, industry knowledge, network connections and a track record of successful investments:

  • Gain Relevant Experience: Work in the finance or investment industry to build a foundation in investment principles, valuation methods and deal structures.
  • Transition To VC Roles: Seek opportunities in VC firms, angel investor groups or startup accelerators to gain hands-on experience in evaluating startups and managing investments in early-stage companies.
  • Develop Industry Expertise: Focus on a specific industry or sector to become an expert, enabling you to identify high-potential investment opportunities.
  • Build A Strong Network: Attend industry events, conferences and pitch sessions to connect with founders, investors and professionals from the startup ecosystem.
  • Create A Track Record: Make your own investments in startups or support investments made by your firm to demonstrate your ability to identify high-potential startups.

What Is The Difference Between A General Partner And A Managing Partner?

In a VC firm, a GP is responsible for investment decisions, fundraising, portfolio management and leveraging their network. At the same time, the managing partner (MP) oversees operations, provides leadership to the team, manages investor relations, represents the firm externally and contributes to strategic direction. 

GPs evaluate and make investment decisions, while MPs handle day-to-day operations, team management and investor relationships. Regarding compensation, GPs share profits, earn carried interest and receive a fee, while MPs receive a salary, bonuses and potentially carried interest.