In a venture capital fund are two types of investors: general partner and limited partner. But, what are the features of each one? And, what role do they assume?
The venture capital fund is an investment that seeks to generate a double impact.First of all, to allocate capital in niche or emerging companies with the promise of high return and, on the other hand, to create a network and a community that drives the value of a business model or an industry.
To achieve balance between a profitable investment strategy to improve the culture and partners community that influences in a positive way in the emerging company in which they invest, and at the same time in the local economy.
Smart capital and venture capital
The venture capital or private equity investments are recognised for the resources injection in value projects and the capacity to generate high returns to the investors. This contribution between capital and value is called smart money. One of the main characteristics that differentiate the venture capital model of any other type of investment.
Ulrick Noel, director of the Eugenio Garza Lagüera Entrepreneurship Institute of Tec de Monterrey explained in an interview that in a venture capital fund investors give the capital and also the management to grow the business in exchange for better returns.
The smart money is not only the money accompaniment, but also helps you grow and face the challenges to gain the goals of the startup.Ulrik Noel, Entrepreneurship Institute of Tec de Monterrey director.
In this process are general partners and limited partners, but what are the duties and functions of each one?
Recognized as the figure similar to a fund manager. Its main role is to identify markets with high potential to invest and make a valuation of the strategy to invest advances.
GPs are part of the emerging company's board to elevate the startup value and drive growth.
Limited Partner (LP)
It works similar to an investment company like a family office or retirement funds. This investor is in a relationship with one or more partners who contribute from 90% to 95% of the investment capital.
In this case, an LP investor or limited partner is called the silent partner since its responsibility lies in the resources and does not intervene in key decisions in the strategy.
In some situations, they can give their opinion but only will be taken as a contribution and it does not represent a decision.
“General partners are fund managers and identify investment niches with potential, Limited partners place their trust in the GP”, added the academic.
Differences between general partner and limited partner
Although both investors contribute a percentage of a strategy in exchange of a percentage of the company's profits, each one assumes a key role within a Venture Capital fund , in a way that without one of them, the proper management would not be achieved.
For example, the GP has the responsibility to identify the potential of a long term investment. Meanwhile, the LP does not only contribute capital, but also the experience and knowledge about the industry in which it is going to invest.
This are the differences between general partners and limited partners:
Venture capital allows individual and institutional investors to grow their money and promote high impact emergent projects and companies.
At WORTEV CAPITALwe are a Venture Capital fund , whose objective is to generate an ecosystem for investors and entrepreneurs that positively impacts everyone.