What is a capital call in private equity?

When an LP commits capital to a venture fund, they don't wire the money upfront. Instead, they sign a legal commitment to fund future "capital calls" — requests from the GP to transfer money into the fund as needed. A capital call (also called a drawdown) is that formal request.

Capital calls are typically issued when the GP is about to make a new investment, needs to make a follow-on investment in an existing portfolio company, or needs to cover fund expenses like management fees. The LP agreement specifies the notice period (usually 10 business days) and the process for wiring funds.

From the LP's perspective, managing capital calls is a treasury function. A large endowment or pension fund might have commitments across 50+ VC and PE funds, each issuing capital calls at unpredictable intervals. LPs maintain reserves of liquid capital (treasury bonds, money market funds) specifically to meet these obligations. Failing to fund a capital call is a serious breach — penalties can include forfeiture of LP interest or forced sale of their position at a discount.

Capital calls have a meaningful timing implication for IRR calculations. Because committed capital isn't actually invested immediately, the timing of when money moves shapes a fund's IRR. A fund that calls capital early and returns it quickly will show a better IRR than one that holds capital for the same absolute return over a longer period.

Some LPs use "subscription lines of credit" — short-term bank loans that fund investments before calling LP capital — to smooth timing and boost IRR optics. This practice has been criticized as making fund performance metrics artificially look better than the underlying investments justify.