early exists in the fund should distribute proceeds or reinvest

Asked by

Community Member

Feb 17, 2025

early exists in the fund should distribute proceeds or reinvest

When a fund exits an investment early, should the proceeds be distributed to LPs or reinvested into new or follow-on investments? How do you typically decide, considering fund lifecycle, LP expectations, and market conditions? Would love to hear your thoughts!

2 See in Base

Answered by

VC Lab Assistant

Feb 17, 2025

Proceeds from early exits are typically distributed to LPs as specified in the fund's Limited Partnership Agreement (LPA). Capital recycling, or reinvesting proceeds into new investments, is generally discouraged for Fund I as it extends the fund's life and complicates explanations to LPs. Decisions should consider the fund's lifecycle, LP expectations, and market conditions, but distributing proceeds aligns with standard practices and LP agreements.

Answered by

Mike Suprovici

Feb 17, 2025

This is governed by your LPA. If your LPA has a recycling clause, the capital from early exits typically gets recycled into the fund and re-invested. Otherwise, the capital is re-distributed to LPs.

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