GP vs LP: Key Differences Explained

A GP (General Partner) is the professional or team that manages a venture capital fund. GPs source deals, conduct due diligence, make investment decisions, support portfolio companies, and ultimately return capital to investors. GP compensation comes from two sources: a management fee (typically 2% of committed capital annually) that covers operating costs, and carried interest ('carry') — typically 20% of the fund's profits above a hurdle rate. This is where GPs make the bulk of their wealth. GPs bear legal liability for the fund's operations and are legally responsible for acting in LPs' best interests. In practice, the 'GP' entity is usually an LLC that limits personal liability. Example: At a $100M fund, the GP earns $2M/year in management fees. If the fund returns $300M, the GP keeps 20% of the $200M profit = $40M in carry. Structurally, "the GP" is usually two entities: a general partner entity that sits inside the fund's limited partnership and receives the carried interest, and a management company that employs the team and receives the management fee. Fees pay salaries, rent, legal, and fund administration; carry is the performance upside, and most firms allocate carry points among partners inside the GP entity, typically on a vesting schedule. GPs also issue capital calls — drawing down LP commitments over time as investments are made rather than taking all the cash up front — and owe fiduciary duties that are spelled out, and increasingly negotiated, in the fund's limited partnership agreement (LPA).

An LP (Limited Partner) is an investor who commits capital to a venture fund. LPs include university endowments, pension funds, sovereign wealth funds, family offices, fund-of-funds, and high-net-worth individuals. LPs are passive investors: they commit capital (often called 'capital calls' are drawn over time) but have no role in investment decisions. Their liability is limited to their committed capital — they can lose their investment but are not personally liable for fund debts. In exchange for their capital, LPs receive 80% of the fund's profits (after the GP's 20% carry) plus the return of their principal. LPs evaluate GPs based on track record, team, strategy, and market fit before committing. Example: A university endowment commits $25M to a $200M VC fund. It has no say in which companies the fund invests in, but receives quarterly performance reports and 80% of distributed profits. The LP relationship is governed by the LPA, and LPs' collective voice is the LP Advisory Committee (LPAC) — a small group drawn from the largest LPs that reviews conflicts of interest, valuation policy, and proposed LPA amendments. LPs' hard obligation is funding capital calls: failing to fund a call is a default, and LPAs typically give the GP severe remedies, commonly including forfeiture of a portion of the defaulting LP's interest. The limited-liability shield, in turn, holds only so long as LPs stay passive — taking part in management can jeopardize it, which is one reason LPAC rights are advisory rather than directive.

For founders, understanding the GP/LP relationship explains why VCs behave the way they do. GPs have LP commitments, fund timelines, and return expectations that shape every investment decision — including whether to push for an exit, lead a follow-on, or pass on a bridge. Knowing who the GP's LPs are and what they expect can tell you a lot about how your investors will behave over the life of your company. For emerging managers, the practical takeaway is that GP economics are back-loaded: management fees on a sub-$50M fund barely cover a small team, and carry arrives only after capital calls, deployment, and exits play out over a decade. LPs know this, which is why questions about firm budget, how the GP commit is financed, and how carry is allocated among partners feature in nearly every first-fund diligence process.

Andreessen Horowitz (the GP) raises a $4B growth fund. They commit $40M of their own capital (1% GP commit). The remaining $3.96B comes from LPs: pension funds, sovereign wealth funds, endowments, and select family offices. a16z (the GP) makes all investment decisions — which companies to fund, at what price, with what terms. LPs receive quarterly reports but have no input on specific investments. If the fund returns $12B (3x), the GP earns 20% of the $8B profit = $1.6B in carry. LPs share the remaining $6.4B profit (80%) plus their $3.96B principal. To see how a single dollar of exit proceeds splits, run a full $100M fund. Management fees of 2% on committed capital in years 1–5 ($10M) and 1.5% in years 6–10 ($7.5M) total $17.5M, leaving $82.5M actually invested. Say the portfolio returns 2.5x gross: $82.5M × 2.5 = $206.25M comes back to the fund. Profit above the $100M of commitments is $106.25M, so 20% carry is $21.25M. LPs receive $206.25M − $21.25M = $185M — a 1.85x net multiple — while the GP entity collects $21.25M of carry on top of the $17.5M of fees that ran the firm for a decade. Put differently: below return of capital, every $1 of proceeds goes 100% to LPs; above it, each incremental $1 splits 80 cents to LPs and 20 cents to the GP. (This fund has no hurdle; with an 8% preferred return, the LP-only zone would extend further before carry switches on.)