Fund Structure
Co-Investment
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Quick Answer
Direct investment by an LP alongside a VC fund in a specific portfolio company — often offered as a perk to large LPs.
What it is
Co-investment allows LPs to invest directly in individual portfolio companies alongside the main fund, usually with reduced or zero fees and carry. For LPs, co-investment offers: direct exposure to specific companies they're most excited about, lower effective fee loads (since fees/carry are waived or reduced), and higher potential returns on concentrated positions. For GPs, co-investment offers: ability to do larger deals without straining fund concentration limits, a way to reward top LPs, and relationship building with valuable capital sources. Co-investment rights are a negotiating point — large LPs often receive pro-rata co-investment rights as a condition of their commitments. The co-investment market has grown significantly, with dedicated co-investment funds and platforms emerging.
In Practice
Sequoia raises a $2B fund with Goldman Sachs committing $100M as an LP. When Sequoia leads a $50M Series B in a hot AI startup, they offer Goldman the opportunity to co-invest an additional $10M directly into the company alongside Sequoia's $20M investment. Goldman gets the same $200M pre-money valuation and terms as Sequoia, but pays no management fee or carried interest on their co-investment portion. This allows Goldman to increase their exposure to a promising deal beyond their standard fund allocation, while Sequoia maintains their target ownership percentage without having to deploy more fund capital.
Operational context
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Why It Matters
Co-investments create alignment issues that founders should understand. When LPs invest directly, they may have different time horizons or exit preferences than the lead VC, potentially complicating future financing rounds or sale processes. For VCs, offering co-investment rights helps them raise larger funds and maintain LP relationships, but can dilute their control over portfolio decisions. LPs love co-investments because they get access to premium deals without paying typical VC fees, often generating higher returns than their fund investments.
VC Beast Take
The co-investment market has exploded as LPs seek fee-free exposure to top deals. Savvy GPs now structure co-investment programs strategically, often cherry-picking which LPs get access to the hottest opportunities. This creates a two-tier system where the biggest LPs get the best co-investment access, reinforcing the advantages of scale in venture capital. Expect co-investment allocations to become an even more important LP negotiation point.
Term Family
Related concepts
Further Reading
General Catalyst and First Round Capital: How Two Firms Are Building Tomorrow's VC Pipeline
General Catalyst's Venture Fellows and First Round's Angel Track take radically different approaches to training the next generation of venture investors. Both are working.
LP Data Room Best Practices: What to Include When Raising Your Fund
A practical guide for emerging managers on exactly what to include in an LP data room, how to structure it, which platforms to use, and the mistakes that quietly kill a fundraise.
VC Term Sheet Template & Guide: Every Clause Explained with Examples
A clause-by-clause breakdown of every standard VC term sheet provision — what each term means, what's market, what to negotiate, and the red flags that cost founders millions.
Side Letter Best Practices for Emerging Managers: What to Grant and What to Avoid
A practical guide to VC side letters for emerging managers: what they are, which provisions are standard, how MFN clauses really work, what to push back on, and how to avoid the most common mistakes that can haunt a fund for its entire life.
Best CRM for Venture Capital: Affinity vs Attio vs HubSpot vs 4Degrees (2026)
A deep comparison of the top CRMs built for venture capital: Affinity, Attio, HubSpot, and 4Degrees. Pricing, features, pros, cons, and which one fits your fund size.
LP Reporting Best Practices: Quarterly Reports That Build Trust
How to write LP quarterly reports that build trust and keep your investors informed. Templates, metrics to include, and the cadence top GPs follow.
Related Guides
How to Raise a Fund: The Step-by-Step Playbook for First-Time GPs
Raising your first VC fund is one of the hardest things you'll do in venture. This step-by-step playbook walks first-time GPs through everything: thesis, legal setup, LP pipeline, the pitch, first close mechanics, and post-close operations. No fluff — just the real playbook.
The First Fund Playbook: From Zero to Fund I Close
The definitive playbook for raising your first venture fund — building your track record, finding LPs, structuring terms, and closing Fund I.
Fund Formation 101: The Complete Guide to Structuring a VC Fund
Everything you need to know about structuring a venture capital fund — entity selection, legal documents, regulatory requirements, and the decisions that shape your fund's DNA.
How to Build an LP Pitch Deck for Your First Fund
Most first-time fund managers build LP decks that look like founder pitch decks. That's a mistake. Here's exactly what institutional and HNW LPs want to see, section by section.
Comparisons
Related Questions
What is a lead investor?
The lead investor is the VC or angel who sets the terms of a round, typically commits the largest check, and coordinates the other investors. Getting a lead is the hardest part of fundraising — once you have one, filling the round is usually faster.
What is a side letter in venture capital?
A side letter is a private agreement between a VC fund's GP and a specific LP that grants that LP special terms not available to other investors — like lower fees, co-investment rights, or additional reporting.
What is a term sheet?
A term sheet is a non-binding document that outlines the key terms of a proposed investment — valuation, amount, ownership percentage, and governance rights. It's the starting point for negotiating a deal.
Careers That Use This Term
This concept is especially relevant for these venture capital roles:
Frequently Asked Questions
What is Co-Investment in venture capital?
Co-investment allows LPs to invest directly in individual portfolio companies alongside the main fund, usually with reduced or zero fees and carry. For LPs, co-investment offers: direct exposure to specific companies they're most excited about, lower effective fee loads (since fees/carry are waived...
Why is Co-Investment important for startups?
Understanding Co-Investment is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
What category does Co-Investment fall under in VC?
Co-Investment falls under the fund-structure category in venture capital. This area covers concepts related to how venture capital funds are organized, managed, and governed.
Sources & References
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