#32 VC Key Terms For Emerging Managers

January 23, 2023

Gm crew! Remember, you can’t spell “fund finance” without “FUN.” 🚀😎

Welcome to the new members of @TheFundCFO crew! Every [week] or so (#goals), we’ll bring you actionable tools, real-world experiences, and insider insights for #VC CFOs and fund managers, #LP investors, and general industry enthusiasts/people who want to learn :).

Our recent post “#31 VC Fund Model & Budget - Free Download” was a huge hit - widely shared and downloaded. Check it out!

VC Key Terms - Getting in the Game as an Emerging Manager

These days, investors often get their start by building a successful angel investment track record before raising capital as a VC fund manager, at which point they are considered to be an “emerging manager” (funds I-III, typically seed+, 2k+ in the US).

An emerging manager often has a different view of where the world is going and access to exciting companies in their focus areas. For example, they could have previously been at a large tech company, building product or driving revenue. Unique insights from VC fund managers has helped drive real financial returns that have outperformed other asset classes, especially if you’re top quartile or decile:

Since emerging managers are new to the VC game, launching or scaling a fund can be both exciting and daunting. There is a lot to learn and get smart on quickly. Sapphire Ventures (via #OpenLP) has compiled insights and best practices from the collective experience of the #OpenLP network. Click here for evergreen resources such as programs, services, and LP lists for emerging managers.

Additionally, firms/people such as Allocate, Chris Harvey @ have written more extensively on emerging managers and key terms that matter.

Key VC Terms Defined

Recently, Chris Harvey () referenced the below tweet that included 260 characters with 32 technical terms for a #VC fund manager. This proves insightful for any emerging manager. Here they all are, defined (link to his full post):

  1. GPs: “General partners” are the fund’s managers/managing directors

  2. LPs: “Limited partners” are the fund’s investors

  3. 506B: “Rule 506(b)” is part of Regulation D, which requires funds to raise privately

  4. 506C: “Rule 506(c)” is also part of Regulation D, which allows funds to raise publicly

  5. Form D: A form required to be submitted with the SEC in reliance on Reg. D

  6. Schedule K-1: An IRS tax form issued every year by the fund to its investors

  7. SEC: “Securities and Exchange Commission,” US securities enforcement agency

  8. LPA: “Limited Partnership Agreement,” the fund’s investment agreement

  9. IRA: “Investors’ Rights Agreement,” part of the NVCA Forms for venture deals

  10. AUM: “Assets under management,” or the amount of capital managed by the GPs

  11. MF: “Management fees,” an annual fixed fee paid by investors for fund operations

  12. 2/20: The industry standard fee structure of 2% management fee/year, 20% carry

  13. DD: “Due diligence,” the process of verifying a potential investment

  14. DR: “Data room,” files and folders uploaded for due diligence

  15. SPV: “Special purpose vehicle,” entity setup to invest in 1+ companies or 1+ assets

  16. Recycling: Money returned from an early exit and re-allocated to a new company

  17. Reserves: Capital set aside for additional investments such as pro rata allocations

  18. Carry: “Carried interest,” the percentage of profit paid to the General Partner

  19. Drag: “Cash drag",” refers to cash on hand that’s not being invested in startups

  20. Hold: “Cash hold",” refers to cash being held to pay for fees, expenses or reserves

  21. Inflows: Cash coming into a company

  22. Outflows: Cash going out of a company

  23. Target IRR: “Internal Rate of Return” the fund aims to achieve for its investors

  24. Gross IRR: “Internal Rate of Return” on the total return of the fund’s investments

  25. Net IRR: Gross IRR after subtracting fees and expenses

  26. MOIC: “Multiple of invested capital,” the value of investment relative to its cost

  27. NPV: “Net Present Value,” a finance method used to compare deal profitability

  28. RVPI: “Realized Value Per Investment” exit value ($) / total number of investments

  29. DPI: “Distribution to Paid-In Capital,” the realization multiple for returns to investors. 1.67x DPI = investors receive 1.67 times their total investment in the fund (!)

  30. TVPI: “Total Value of Paid-in Capital,” the same as MOIC after capital calls met, but before, TVPI will be greater than MOIC (Total Value / Paid in Capital)

  31. RoI: “Return on Investment,” a measure of of profitability of an investment expressed as a percentage: (Net Profit / Total Investment) x 100 = %

  32. CoC: “Cost of Capital,” minimum returns investors expect for providing capital

Additional Resources & Further Reading