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Limited Partners (LPs) are the investors who add their money to a VC fund and let General Partners invest that money for them.
A limited partner is an individual or entity that provides capital to a partnership, such as a venture capital firm or private equity firm, in exchange for ownership equity in the partnership. Limited partners do not actively participate in the management and operations of the partnership and are not personally liable for the debts and obligations of the partnership.
In a venture capital or private equity firm, the limited partners are typically large institutional investors, such as pension funds, endowments, or foundations, who provide capital to the partnership in exchange for a share of the profits generated by the investments. The limited partners do not have any say in the investment decisions of the partnership and are not involved in the day-to-day management of the portfolio companies.
The general partner, on the other hand, is an individual or entity that is actively involved in the management and operations of the partnership. The general partner is responsible for making investment decisions, overseeing the portfolio companies, and contributing their expertise and resources to the partnership. The general partner is typically compensated based on the performance of the partnership and may receive a share of the profits generated by the investments.
The liability of limited partners is typically limited to the amount of capital they have invested in the partnership. This means that if the partnership incurs debts or liabilities, the limited partners are not personally responsible for paying them. However, if a limited partner actively participates in the management and operations of the partnership, they may be held personally liable for the debts and obligations of the partnership.
Overall, a limited partner is an individual or entity that provides capital to a partnership in exchange for ownership equity, but does not actively participate in the management and operations of the partnership. The liability of a limited partner is typically limited to the amount of capital they have invested in the partnership, while the general partner is responsible for the management and operations of the partnership and may be held personally liable for its debts and obligations.