Rounds & financing
Also called drawdown, capital drawdown
A capital call is a venture fund's request that its limited partners transfer a portion of the money they have committed, made when the fund needs cash to make an investment or pay expenses.
When a fund announces it has raised $200m, that is a set of commitments, not a balance. The money stays with the limited partners until the general partner calls it, typically over three to five years as investments are made.
Calls are issued with a notice period, commonly ten business days, specifying the amount and the purpose. Failing to meet one is a serious default, and fund documents carry heavy penalties including forfeiture of a portion of the LP's interest.
A fund's ability to fund your round depends on its LPs meeting calls. In stressed markets this stops being theoretical, particularly for funds whose LPs are themselves illiquid.
It also explains why a fund with capital remaining may still decline to invest. Reserves are allocated to existing portfolio companies for follow-ons, so dry powder is not the same as money available for new investments.
They are in default. Fund documents typically impose penalties up to forfeiture of a significant portion of their interest, and the remaining LPs may be asked to cover the shortfall.
Usually a three to five year investment period, after which uncalled commitments are generally released except for reserves supporting existing portfolio companies.
No. Holding uninvested cash would drag on returns, so capital sits with the LPs and is called as needed.
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