Institutional Investors and Venture Capital Funds - Frenemies or Pals?
On March 1, 2010, Dr. Susan Mangiero, CEO of Investment Governance, Inc. sat down to talk to financial and strategy expert, Mr. Pascal Levensohn. In this final question of ten, read what this Investment Governance, Inc. Advisory Board member has to say about limited partners and lawsuits involving venture capital "VC" fund managers. Click here to read Mr. Levensohn's impressive bio.
SUSAN: I've read that some general partners ("GP"s) are suing LPs for not making capital calls. The LPs claim that they are cash constrained and/or the VC fund has not performed. Do you see a trend in the making?
PASCAL: First, it would appear that the reports of numerous limited partner ("LP") defaults exceed the reality. Based upon discussions with industry participants, most institutional LPs have, in fact, met their obligations to make capital calls. Second, the decision of a GP to sue an LP over a default is most often the absolute last resort. The GPs are not in business to institute litigation. This is a distraction for the GP and added publicity that neither GPs nor LPs desire. When the LP Agreement is executed, all of the parties enter into a contract with the expectation that both LPs and GPs will honor their respective commitments. The GPs have committed their time. They have built an organization to implement an investment strategy and program for the VC fund. They should be entitled to rely on the contractual obligations of those sophisticated investors who agreed to support this program over the long term.
Editor's Note: Our heartfelt thanks to Mr. Pascal Levensohn for taking time to talk to Investment Governance, Inc. on behalf of subscribers to www.FiduciaryX.com. The topic of venture capital fund investing is an important one indeed. Readers may want to check out "A Simple Guide To The Basic Responsibilities of VC-Backed Company Directors" (Working Group on Director Accountability and Board Effectiveness, National Venture Capital Association, October 2007).
