Corporate & Securities Law

Election Calls Turn to Capital Calls

By Ryan Roberts

The election is over and thankfully so are those robotic “vote for prop 98c(ii) or else your head will explode and dolphins will die” phone calls. However, some large institutions wish they were getting those calls instead of the capital calls from various venture firms.

VentureBeat and Private Equity Hub have put out articles this afternoon about how limited partners of venture capital and private equity funds are having difficulty meeting capital calls from the general partners of such funds:

Cash panic sweeping VC industry: The capital calls problem (VentureBeat)

LPs Are on the Ropes (peHUB)

When a venture firm raises a fund, it gets the limited partners (think large institutional investors like banks and pension funds) to commit to a certain capital amount known as a “capital commitment” in exchange for its limited partnership interest. Thus, the limited partner does not fully-fund the venture fund with their capital commitment when they sign the fund’s limited partnership agreement. Rather, the limited partnership agreement spells out the procedure how the general partner makes capital calls, including notice provisions, minimum amounts, and penalties for late payments.

Full post as published by The Startup Lawyer on November 07, 2008 (boomark / email).