Fund Structure
J-Curve
The typical return pattern of a VC fund: negative returns early (fees, early losses) followed by positive returns as successful companies mature and exit.
The J-curve describes the characteristic performance trajectory of a venture capital fund over its lifetime. In years 1-3, fund performance is negative: management fees are charged, early investments are written down or written off, and no exits have occurred. The fund appears to be losing money. In years 4-7, early investments begin to mature. Successful companies raise higher-priced rounds, increasing their marks. Some early exits occur. By years 7-10, the best companies have exited via IPO or acquisition, returns are realized, and DPI climbs. The J-shape on a chart (going down then steeply up) is characteristic of illiquid asset classes with long holding periods. LPs understand the J-curve but must commit capital for long periods before seeing returns.