Fund Structure
Concentration Limit
A restriction in the fund's LPA that caps the percentage of the fund that can be invested in any single company or sector.
A concentration limit is a contractual restriction in the limited partnership agreement that prevents the GP from investing more than a specified percentage of committed capital in any single portfolio company, industry sector, or geographic region. Common limits range from 10-15% per company and 25-30% per sector, though some funds negotiate higher limits for high-conviction strategies.
In Practice
The LPA included a 15% concentration limit per company, but when their Series A investment in the breakout AI startup grew to represent 40% of fund value, the GP needed LP consent to make a follow-on investment that would increase the cost basis beyond 15%.
Why It Matters
Concentration limits balance portfolio diversification against the benefits of doubling down on winners. They protect LPs from excessive risk but can also prevent GPs from maximizing returns on their best investments.
VC Beast Take
The tension between concentration limits and the power law is real. The best VC returns come from concentrated positions in outsized winners, but concentration limits exist because not every GP's conviction is well-calibrated. The best approach is flexible limits that allow the GP to go deeper on proven winners.
Related Concepts
Further Reading
What Is a Special Purpose Vehicle (SPV) in Venture Capital?
How special purpose vehicles work in venture capital — SPV structure, economics, legal requirements, and when they make sense for angel syndicates, co-investments, and emerging managers.
LP vs GP: How Venture Capital Fund Structure Works
A clear explanation of how venture capital funds are structured, the roles of limited partners and general partners, fee economics, and how fund structure affects startup founders.
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