Venture Cap/private Equity Test 1 Study Guide Rated A+

How much discretion should GP have? Fund Restrictions (1) {Ans: Covenants - size of any one portfolio company in fund (% of asset value or % of committed capital- can't put like 40% into one area or company) - limits use of debt - can't make long-term loans and be capped - bc it's not a BO fund its a VC fund - limit on chaining of investments (fund X can't invest in Fund IX portfolio companies - limit on reinvestment of profits from exited companies}Support for Focusing on Fund 1- not raising fund 2 {Ans: - still a new firm, will take a lot of energy to raise more capital (first fund took a long time, but had a lot of external events working against them like SARS, Iraq War, US election) - small/medium firm (do they have the time/resources to do another fund?) - if they start fund 2 might fund 1's performance suffer - they need to create some performance thru exits (performance multiple is a function of both current portfolio, value, and distributions --> x=(dist + left in fund)/(committed cap) - is fund 1 fully invested? - is china overheating and too much money