Comparison
GP vs LP: Key Differences Explained
A GP (General Partner) manages a venture fund — they make investment decisions and earn carried interest on profits. An LP (Limited Partner) is the capital provider — they commit money to the fund but have no say in investment decisions and earn the majority of fund profits. GPs run the fund; LPs fund it.
What is GP?
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.
What is LP?
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.
Key Differences
| Feature | GP | LP |
|---|---|---|
| Role | Active fund manager — makes all investment decisions | Passive capital provider — no investment decisions |
| Liability | Unlimited (in theory); limited in practice via GP LLC | Limited to committed capital |
| Compensation | Management fee (2%) + carried interest (20% of profits) | 80% of fund profits + return of principal |
| Capital contributed | Small GP commit (1–3% of fund) required | Majority of fund capital |
| Governance rights | Full control over investment decisions | Advisory rights via LPAC; no investment veto |
| Who they are | VC fund managers, partners | Endowments, pensions, family offices, HNW individuals |
| Time horizon | 10+ years per fund, multiple funds simultaneously | 10-year commitment per fund; illiquid until distributions |
When Founders Choose GP
- →You're building a venture fund and will be the decision-maker on investments
- →You have a track record, thesis, and LP relationships to raise capital
- →You want economics tied to investment performance rather than salary
- →You're willing to commit 10+ years to a fund strategy and LP relationships
When Founders Choose LP
- →You have capital to allocate to venture as an asset class but don't want to manage individual investments
- →You're an institution (endowment, pension) or family office seeking VC exposure
- →You want diversified VC exposure through a professionally managed fund
- →You're an accredited investor evaluating a specific fund manager's strategy and team
Example Scenario
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.
Common Mistakes
- 1Assuming all 'partners' at a VC firm are General Partners — many firms have principals, associates, and venture partners who are not GPs
- 2Thinking LPs can influence investment decisions — they generally cannot, except in extreme circumstances via LPAC
- 3Confusing LP in a fund with LP in a startup cap table — startups are not limited partnerships; the terms don't apply
- 4Assuming the GP co-invest requirement is optional — most LP agreements require GPs to invest their own money alongside LPs
Which Matters More for Early-Stage Startups?
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.