Fund Structure
Illiquid Asset
An investment that cannot be quickly converted to cash without potentially significant loss in value.
Illiquid assets are investments that cannot be easily sold or exchanged for cash at fair market value within a short timeframe. Venture capital fund interests and private company shares are inherently illiquid — there's no public market, buyers must be found individually, and transfer restrictions often apply. This illiquidity is a fundamental characteristic that differentiates private from public market investing.
In Practice
An LP holds a $10M interest in a VC fund but needs liquidity. Selling on the secondary market takes 2-3 months and typically requires accepting a 10-20% discount to NAV.
Why It Matters
Illiquidity is VC's hidden cost — capital is locked up for 10+ years. LPs must ensure they can tolerate this illiquidity and typically demand higher returns (the 'illiquidity premium') as compensation.
Related Concepts
Further Reading
Angel Investing Returns: What the Data Actually Shows
A data-driven look at angel investing performance — Kauffman Foundation research, AngelList data, power law dynamics, and the harsh portfolio math most angels never confront.
Secondary Markets for Startup Equity: How to Buy and Sell Private Company Shares
How secondary markets for private company shares work — who buys and sells, how pricing is determined, the legal and tax mechanics, and what both sides need to understand before transacting.
VentureKit
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