Fund Structure
Subscription Line of Credit
A loan facility backed by LP commitments that allows a fund to make investments before calling capital from LPs, smoothing cash management.
A subscription line of credit (also called a capital call facility) is a revolving credit facility extended to a VC fund, secured by the uncalled capital commitments of its LPs. The fund borrows from the credit line to make investments or cover expenses, then repays by issuing capital calls to LPs. This allows the GP to move quickly on deals without waiting for capital calls to process and can smooth the timing of LP capital contributions.
In Practice
Using their $50M subscription line, the GP funded the $15M Series A investment immediately upon signing, then issued a capital call to LPs 45 days later to repay the line. Without the facility, the deal would have required a 30-day capital call process that might have lost the competitive deal.
Why It Matters
Subscription lines improve deal execution speed and fund returns (by delaying LP capital calls, which flatters IRR calculations). However, they also add leverage and cost to the fund structure, and their impact on IRR reporting has become controversial.
VC Beast Take
The IRR-boosting effect of subscription lines is the elephant in the room. By delaying capital calls, funds can artificially inflate their IRR by 200-400 basis points without generating any additional actual returns. LPs are increasingly demanding IRR reporting both with and without subscription line effects.
Related Concepts
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