Fund Structure
Key Person Clause
Last updated
Quick Answer
A fund provision allowing LPs to suspend further capital contributions or terminate the fund if a named key GP leaves the fund.
A key person clause (or key man provision) protects LPs from the scenario where the partners they backed leave the firm — fundamentally changing what they invested in. If a named key person (or specified number of key persons) leaves the GP entity, LPs can trigger the key person clause: halting new investments, suspending capital calls, or in extreme cases, triggering fund dissolution. Key person clauses are negotiated carefully: GPs want as few named persons as possible (reducing risk of triggering), while LPs want all important decision-makers named. The clause incentivizes GPs to maintain team stability and succession plans. Key person events don't automatically dissolve funds — they typically trigger a suspension period during which GPs and LPs negotiate a path forward.
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Further Reading
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Key Person Clause: What It Is and How to Structure It
A key person clause protects LPs when essential fund managers leave. Here's how to structure it, what triggers a key person event, and how to negotiate it effectively.
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Frequently Asked Questions
What is Key Person Clause in venture capital?
A key person clause (or key man provision) protects LPs from the scenario where the partners they backed leave the firm — fundamentally changing what they invested in.
Why is Key Person Clause important for startups?
Understanding Key Person Clause is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
What category does Key Person Clause fall under in VC?
Key Person Clause 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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