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Fund Structure

Feeder Fund

Last updated

Quick Answer

A fund vehicle that pools investor capital and channels it into a master fund, used in master-feeder structures to accommodate different investor types and jurisdictions.

A Feeder Fund is an investment vehicle that collects capital from a specific group of investors and 'feeds' it into a master fund that makes all investment decisions and holds the portfolio. Feeder funds are used in master-feeder structures to accommodate investors from different jurisdictions, tax regimes, or regulatory environments while maintaining a single investment portfolio. Typical feeder fund configurations include a U.S. domestic feeder (Delaware LP for U.S. taxable investors), an offshore feeder (Cayman Islands LP for non-U.S. and tax-exempt investors), and sometimes additional feeders for specific investor categories. Each feeder fund has its own LPA, subscription process, and potentially different fee structures, but all feeders invest exclusively through the master fund. The master fund makes all investment decisions, holds all portfolio assets, and allocates returns back to feeders based on their ownership percentage. Feeder funds add legal complexity and cost but are necessary for raising capital from a global and diverse LP base.

In Practice

A venture fund uses a master-feeder structure with two feeders: a Delaware LP feeder for U.S. accredited investors and a Cayman Islands LP feeder for non-U.S. and U.S. tax-exempt investors. A European family office invests through the Cayman feeder to avoid direct U.S. tax filing obligations. Both feeders invest 100% of their capital into the master fund, which deploys capital into portfolio companies. Returns flow back through the feeders to each LP.

Why It Matters

Feeder funds enable GPs to access the broadest possible LP base by creating tax-efficient and regulatory-compliant entry points for different investor categories. For LPs, understanding the feeder structure ensures they invest through the vehicle that provides the most favorable tax treatment and regulatory compliance for their specific situation.

Further Reading

Distributions in Venture Capital: Waterfall, Timing, and Tax Implications

Learn how venture capital distribution waterfalls work, when LPs receive proceeds, and the key tax implications every fund manager and LP needs to understand.

Frequently Asked Questions

What is Feeder Fund in venture capital?

A Feeder Fund is an investment vehicle that collects capital from a specific group of investors and 'feeds' it into a master fund that makes all investment decisions and holds the portfolio.

Why is Feeder Fund important for startups?

Understanding Feeder Fund is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.

What category does Feeder Fund fall under in VC?

Feeder Fund 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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