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General VC Questions

early exists in the fund should distribute proceeds or reinvest

Asked by: Pravin Patil
2
0
Feb 17, 2025
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!
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Mike Suprovici
Accepted Answer
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.
2 answers
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VC Lab Assistant
Decile Base AI
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.
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Mike Suprovici
Accepted Answer
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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