January 29, 2022

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Who is a General Partner (GP) in a Venture Capital (VC) and Key Explanations

Who is a General Partner (GP) in a Venture Capital (VC) and Key Explanations
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Venture capital is an alternative form of investment. The VC fund is usually provided to Equity Capital companies. Or private companies to be precise. A VC is made up of limited partners (LPs) and general partners (GP). Let us dive into general partners.

Definition of General Partners

A general partner is a member of a partnership business that assumes an active role in the entity and as well bears the liabilities of such entity to the extent of his/her personal properties.

Who is a GP in a Venture Capital (VC) Firm?

He or she is a member or part-owner of the VC firm. A general partner takes active roles in the entity. And is liable to its debts.

If the resources of the venture capital firm cannot meet up current obligations, then the general partners will pay such loans with their possessions.

Key Explanations

A part-owner. A general partner is one of the owners of a VC firm. Before a venture capital entity can exist, a group of persons with similar ideas come together to form the business. This individual will pool their resources (capital) together to establish the business.

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Takes active roles. A GP assumes an important role in the VC business. Sourcing for funds from LPs, attending board meetings of investee companies, researching to know the best company to invest its funds are just a tip in the iceberg.

Unlimited Liabilities. This is a disadvantage of being a GP of a VC. If the business is not properly managed and it may result in bankruptcy. And the GP will lose not only their investments in the entity but also their possessions.

If the assets or resources available cannot settle the liabilities of the venture capital firm, then the General Partners will have to use their cash and possessions to pay the liabilities.

Why become a General Partner?

Sitting at a board meeting may just be a great reason to be a general partner. Also, knowing that you will be helping a startup to grow to become a large and highly respected company can give you enough joy. Also, you will be sharing your expert ideas to these companies to assist in their growth and expansion.

Of course, if you love doing research and analysing financial data, then, a GP might be the right job for you. This is so as you will need to analyse the financial data of the company and compare them with industry data and standards.

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Don’t become a General Partner?

The fact that the general partners have unlimited liabilities is enough to discourage an individual from being a GP in a Venture capital firm. Unlike traditional financial intermediaries, VCs go out to source for funds.

Convincing an individual with the surplus fund to invest in a company for a long period is a daunting task. It also requires the necessary negotiating skills. Another area that may discourage you from being a General Partner in a Venture capital entity is the task of choosing the right company to invest VC funds.

Conclusion

General Partners are the main owners of a venture capital firm. It has a disadvantage that they have unlimited liabilities. GPs are better-off, seating on the board meetings of the investee company and providing technical assistance for the growth and expansion of the private equity firm.

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