Comments on: Capital Calls http://academicvc.com/2009/01/31/capital-calls/ Stephen Fleming's blog about academia, venture capital, and spaceships Fri, 23 Jul 2010 13:32:09 -0400 http://wordpress.org/?v=abc hourly 1 By: Blake http://academicvc.com/2009/01/31/capital-calls/comment-page-1/#comment-119 Blake Sun, 15 Feb 2009 00:13:00 +0000 http://academicvc.wordpress.com/2009/01/31/capital-calls/#comment-119 Have you heard of many LPs defaulting on capital calls in Atlanta? Have you heard of many LPs defaulting on capital calls in Atlanta?

]]> By: Stephen Fleming http://academicvc.com/2009/01/31/capital-calls/comment-page-1/#comment-118 Stephen Fleming Tue, 03 Feb 2009 02:07:00 +0000 http://academicvc.wordpress.com/2009/01/31/capital-calls/#comment-118 CalPERS down 41% since 2007: http://tr.im/e9j4 CalPERS down 41% since 2007: http://tr.im/e9j4

]]> By: Stephen Fleming http://academicvc.com/2009/01/31/capital-calls/comment-page-1/#comment-117 Stephen Fleming Sat, 31 Jan 2009 17:45:00 +0000 http://academicvc.wordpress.com/2009/01/31/capital-calls/#comment-117 It's completely dependent on the organizing documents of the limited partnership, and those really DO vary from fund to fund. Even within the same family, our default terms were very different in ATV-I versus ATV-III.<br/><br/>It might be that the defaulting LP is just cut out of future financings. It might be that their previous investments get converted to a note, to be payable in the sweet bye-and-bye. Or it might be that their portion of the partnership just vaporizes, leaving proportionally more for the investors who continue to invest.<br/><br/>This is ugly stuff, and I suspect a lot of funds and a lot of investors are going to be surprised by what got written into those thousand-page LP agreements... It’s completely dependent on the organizing documents of the limited partnership, and those really DO vary from fund to fund. Even within the same family, our default terms were very different in ATV-I versus ATV-III.

It might be that the defaulting LP is just cut out of future financings. It might be that their previous investments get converted to a note, to be payable in the sweet bye-and-bye. Or it might be that their portion of the partnership just vaporizes, leaving proportionally more for the investors who continue to invest.

This is ugly stuff, and I suspect a lot of funds and a lot of investors are going to be surprised by what got written into those thousand-page LP agreements…

]]> By: Paul Freet http://academicvc.com/2009/01/31/capital-calls/comment-page-1/#comment-116 Paul Freet Sat, 31 Jan 2009 17:34:00 +0000 http://academicvc.wordpress.com/2009/01/31/capital-calls/#comment-116 If a VC firm make a capital call and an LP defaults, my understanding is they lose their entire position. Is this correct?<br/><br/>So, what if a fund is half invested and they want to make a new investment. And some LPs can make the capital call, but others cannot. Isn't it a disservice to the LPs that do have funds and want it invested for the VC firm to not make the investment? Especially if it is a follow-on investment to a portfolio company that desperately needs the funds?<br/><br/>Does the VC firm play nice so they can raise their next fund? And let a portfolio company fail? Or do they make the call knowing some LPs will default (which is great for the remaining LPs)? If a VC firm make a capital call and an LP defaults, my understanding is they lose their entire position. Is this correct?

So, what if a fund is half invested and they want to make a new investment. And some LPs can make the capital call, but others cannot. Isn’t it a disservice to the LPs that do have funds and want it invested for the VC firm to not make the investment? Especially if it is a follow-on investment to a portfolio company that desperately needs the funds?

Does the VC firm play nice so they can raise their next fund? And let a portfolio company fail? Or do they make the call knowing some LPs will default (which is great for the remaining LPs)?

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