Most founders — and a surprising number of first-time fund managers — don't actually know what a venture fund is as a legal structure. Gurpreet S. Bal has represented both sides of the GP/LP relationship and sees the same misconception repeatedly: "Most founders think of a VC fund as a bank account. It's a legal structure with a 10-year clock, and the clock matters more than the check size."
Understanding the entity stack and fund lifecycle is the first thing any founder or emerging manager should do before they negotiate a single term.
A venture fund is typically two or three Delaware limited partnerships layered on top of each other. The main fund is an LP. The general partner — the entity that controls investment decisions — is usually a separate Delaware LLC owned by the founding partners. There is also often a management company, a third entity, through which the GP charges and receives the management fee. That management fee flows to the management company, not the GP entity itself, which matters for tax purposes. When a founder takes a meeting with a VC, they are talking to individuals employed by the management company, representing the GP, on behalf of the LP. Gurpreet Bal regularly sees founders conflate these entities in due diligence, which creates unnecessary confusion when the investment documents land.
The Limited Partnership Agreement (LPA) is the constitutional document of the fund. It governs everything: how capital is called, how investments are approved, how profits are distributed, and what happens if a key person leaves. The LPA is negotiated before the fund closes — the terms are not renegotiated for each deal. Alongside the LPA, a fund will have a Private Placement Memorandum (PPM) that describes the fund's strategy and risk factors for potential investors, and a subscription agreement that each LP signs to commit capital. These are separate documents with separate legal functions. What the PPM says about strategy is not legally binding; what the LPA says about economics absolutely is.
A standard venture fund has a 10-year term, often with one or two one-year extensions. The first three to five years are the investment period — the GP is deploying capital into new positions. After the investment period closes, no new investments can be made from that fund (follow-on rounds into existing portfolio companies are usually still permitted). The remaining years are the harvest period: the GP is managing the portfolio toward exits. This clock is not academic. A fund approaching year eight with illiquid positions faces real pressure — not from market dynamics, but from the LPA itself. LPs who understand this use fund age as a negotiating signal. Most founders don't.
Most institutional venture funds have a Limited Partner Advisory Committee (LPAC). This is a subset of the larger LP base — typically the largest or most sophisticated investors — who review and approve conflicts of interest, valuation disputes, and fund extensions. The LPAC does not direct investments. But it has real power: it can approve or reject a GP's request to extend the fund's term, opine on related-party transactions, and remove the GP for cause in extreme circumstances. The LPAC operates mostly behind closed doors, and its composition and powers are defined in the LPA. Founders rarely see any of this, but it shapes how the GP behaves — particularly when the fund is under pressure.
Gurpreet S. Bal is a corporate partner with 16 years advising on private equity, merger transactions, and public offerings for companies and investors at three of the world's top law firms. He has represented clients in hundreds of transactions with aggregate deal value exceeding $60 billion across AI, semiconductors, fintech, and emerging technology. For more information and to get in touch, visit gurpreetbal.com.