Fund Structure
Last updated
Quick Answer
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.
VC Beast Take
Illiquidity is the price of admission to venture's outsized returns, but too many LPs treat it as a temporary inconvenience rather than a fundamental feature. The smartest institutional investors have learned to embrace illiquidity as a competitive advantage — while retail investors panic-sell public markets during downturns, committed capital in VC funds stays put and often benefits from distressed opportunities. Illiquidity isn't a bug, it's the feature that generates alpha.
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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...
Understanding Illiquid Asset is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
Illiquid Asset 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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