Fund Structure
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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.
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.
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.
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This concept is especially relevant for these venture capital roles:
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...
Understanding Co-Investment is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
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.
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