Fund Structure
Cross-Fund Investment
Last updated
Quick Answer
When multiple funds managed by the same GP invest in the same portfolio company, creating potential conflicts between fund vintages.
What it is
A cross-fund investment occurs when a GP invests in the same company from two or more funds they manage. This typically happens when Fund I makes an initial investment and Fund II provides follow-on capital. While this can be an efficient way to continue supporting winners, it creates conflicts of interest because the GP must balance the interests of LPs in different funds with different economics.
In Practice
Fund II led the Series B of a Fund I portfolio company at a 5x markup from the Series A price. LPs in Fund I loved the markup, but Fund II LPs questioned whether the GP had an incentive to overpay to boost Fund I's paper returns.
Operational context
What good looks like
The term is tied to a real workflow, not just a definition.
Ownership, timing, and evidence are clear.
The reader can tell what decision the concept supports.
Related terms point to the next useful explanation.
Why It Matters
Cross-fund investments create inherent conflicts that must be managed carefully. LPs in newer funds worry about overpaying to support older fund positions, while LPs in older funds worry about newer fund capital being prioritized.
VC Beast Take
The best practice is an independent valuation for cross-fund transactions and clear policies disclosed in the LPA. Some firms require LPAC approval for cross-fund investments above certain thresholds. Transparency is the key to maintaining LP trust across vintage years.
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Term Family
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Frequently Asked Questions
What is Cross-Fund Investment in venture capital?
A cross-fund investment occurs when a GP invests in the same company from two or more funds they manage. This typically happens when Fund I makes an initial investment and Fund II provides follow-on capital.
Why is Cross-Fund Investment important for startups?
Understanding Cross-Fund 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 Cross-Fund Investment fall under in VC?
Cross-Fund 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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