General Partners (GPs) manage venture capital funds and make all investment decisions. They source deals, negotiate terms, sit on boards, and guide portfolio companies. GPs earn 2% annual management fees plus 20% of profits (carried interest).
Limited Partners (LPs) provide the capital but stay hands-off. They’re typically pension funds, endowments, family offices, and high-net-worth individuals. LPs receive 80% of profits after their initial capital is returned but have no control over individual investments.
Key difference: GPs run the fund full-time and take unlimited liability. LPs write one check, remain passive investors, and risk only what they invested.
When Anthropic raised $13 billion at a $183 billion valuation in September 2025, the deal involved two types of investors working together. Iconiq Capital, Fidelity, and Lightspeed led as General Partners. Behind them stood Limited Partners -pension funds, endowments, and institutional investors, who supplied most of the actual cash.
If you follow AI funding news, you see “Series F led by XYZ Ventures” all the time. But most people don’t know the mechanics. The lead firm isn’t writing the entire check. They’re the General Partner managing money from Limited Partners who stay mostly invisible.
Here’s how it actually works.
What General Partners Do
General Partners run the fund. They make every major decision about where money goes.
GPs spend their days hunting for deals. They evaluate hundreds of startups, pick 15-25 to invest in, negotiate terms, and sit on boards. When Scale AI raised $14.3 billion from Meta in June 2025, a GP at Meta’s investment arm structured that deal, ran due diligence, and got final approval.
The work doesn’t stop after writing the check. GPs guide portfolio companies through growth challenges. They connect founders with customers, help recruit executives, and plan exit strategies. If a startup needs a pivot, the GP is in the room making it happen.
GPs put their own money in the fund. Usually 1-5% of the total. This aligns their interests with LPs. If the fund tanks, GPs lose their personal capital too.
Most GPs come from three backgrounds: successful founders who sold companies, senior operators from high-growth startups, or investors who climbed the VC ladder. They need deep networks to source deals and the judgment to pick winners in markets where 7 out of 10 investments fail.
How GPs Get Paid
GPs earn money two ways.
Management fees cover operating costs. The standard is 2% of committed capital annually. A $500 million fund pays the GP $10 million per year to run operations—salaries, office space, travel, research tools.
Carried interest is where GPs make real money. After returning all LP capital plus a minimum return (usually 8%), GPs take 20% of profits.
Math example: A fund raises $100 million and returns $300 million. LPs get their $100 million back first. The remaining $200 million in profit splits 80/20. LPs receive $160 million. GPs pocket $40 million.
The best GPs at firms like Sequoia or Andreessen Horowitz can make $5-10 million annually just from management fees. Add carried interest from successful funds, and total compensation hits $20-50 million for top performers.
What Limited Partners Do
Limited Partners write the checks. They’re the money behind the money.
LPs commit capital to funds but stay hands-off. Once they invest, their work is essentially done. They don’t pick which startups get funded. They don’t attend board meetings. They’re passive investors betting on the GP’s ability to generate returns.
Think of LPs as customers buying a product. The product is “access to venture returns managed by experts.”
The biggest LPs are institutions managing other people’s money:
Pension funds like CalPERS and Teacher Retirement System of Texas invest billions to pay future retiree benefits. CalPERS Private Equity Program reported an 11.1% net IRR, beating public markets.
University endowments like Yale and Stanford allocate 10-20% of their portfolios to venture capital. Yale’s endowment pioneered this strategy and generated 30+ years of outperformance.
Sovereign wealth funds invest on behalf of governments. Norway’s Government Pension Fund Global commits billions to VC funds targeting technology and AI.
Family offices manage wealth for ultra-rich families. They invest $25-100 million per fund, seeking diversification beyond stocks and real estate.
Insurance companies like MetLife allocate a small percentage to venture capital for higher returns to offset policy payouts.
Individual high-net-worth investors can be LPs too. Minimum commitments typically start at $1-5 million for established funds. First-time fund managers might accept $250k minimums to reach their target.
LP Return Expectations
LPs expect funds to return 3x their money over 10 years. That’s roughly 25% IRR. Anything below 2x is considered poor performance.
Top quartile funds return 4-5x. The best funds from Sequoia, Benchmark, and Andreessen Horowitz have returned 10x+ on certain vintages.
LPs evaluate GPs before committing capital. They review track record, investment thesis, team experience, and portfolio company support capabilities. A GP pitching their first fund needs to show domain expertise, a differentiated strategy, and access to quality deal flow.
Key Differences: LP vs GP
| Factor | General Partner (GP) | Limited Partner (LP) |
|---|---|---|
| Role | Manages the fund and makes investment decisions | Provides capital but stays passive |
| Time Commitment | Full-time job for 10+ years | 10-20 hours/year reviewing reports |
| Decision Power | Complete control over investments | Zero control over individual deals |
| Liability | Unlimited (personal assets at risk) | Limited to amount invested |
| Compensation | 2% management fee + 20% of profits | 80% of profits after capital returned |
| Investment Required | $500K-$5M personal capital (1-5% of fund) | $1M-$5M minimum commitment |
| Typical Investors | Experienced founders, VCs, operators | Pension funds, endowments, family offices, HNWIs |
| Risk Profile | Concentrated (career + capital in one fund) | Diversified (10-20 funds) |
| Day-to-Day Work | Sourcing deals, due diligence, board seats | None (completely hands-off) |
| Exit Flexibility | Locked in for full fund life (10+ years) | Locked in for full fund life (10+ years) |
Decision-making power: GPs decide everything. LPs have zero control over individual investments. The Limited Partnership Agreement gives LPs very limited voting rights—usually only on major changes like replacing the GP or extending the fund life.
Time commitment: GPs work full-time running the fund. This is their job for 10+ years. LPs spend maybe 10-20 hours per year reviewing performance reports and attending annual meetings.
Liability: LPs have limited liability. They can only lose what they invest. GPs have unlimited liability for fund debts and obligations. If the fund gets sued, the GP’s personal assets are at risk (though GPs usually structure entities to minimize this).
Compensation: GPs get management fees and 20% of profits. LPs get 80% of profits after their capital is returned. A $10 million LP investment in a successful fund might return $30 million over 10 years. Not bad for passive investing.
Investment minimums: LPs need $1-5 million for most funds. GPs need $500k-$5 million of personal capital to commit to their own fund.
Risk profile: LPs diversify across 10-20 funds to reduce risk. GPs concentrate their career and capital on one fund at a time. If the fund fails, the GP’s reputation is destroyed. LPs just move on to other investments.
Real Example: OpenAI’s $40 Billion Round
OpenAI’s March 2025 funding shows how LP/GP dynamics work at scale.
SoftBank acted as the General Partner. They structured the deal, negotiated terms, and built a syndicate of LPs. SoftBank committed $10 billion of their own fund’s capital.
Behind SoftBank stood dozens of LPs. Pension funds, sovereign wealth funds, and institutional investors contributed the remaining $30 billion. These LPs trusted SoftBank’s judgment that OpenAI would deliver returns despite the massive valuation.
SoftBank used $10 billion in debt financing as part of the structure. LPs approved this leverage because it can amplify returns—if things go well. If OpenAI struggles, debt holders get paid first, and LPs could lose everything.
The LPs investing through SoftBank didn’t attend OpenAI board meetings. They didn’t meet Sam Altman. They reviewed SoftBank’s investment memo, checked the track record, and wired the money.
SoftBank now manages those LP relationships for the next 7-10 years until exit.
Why This Matters for AI Startups
Understanding LP/GP dynamics helps you read funding announcements correctly.
When you see “Anthropic raises $13 billion led by Iconiq Capital,” recognize that Iconiq is the GP. They convinced their LPs—probably pension funds and endowments—that Anthropic justified a $183 billion valuation.
The LP money is “patient capital.” These investors can’t pull funding next month if things get tough. Once committed, that capital stays invested for years. This stability helps AI companies with long development timelines.
GPs with strong LP relationships can move fast. When Cursor hit $29.3 billion valuation with a $2.3 billion Series D in November 2025, Accel and Coatue (the GPs) called their LPs and closed the deal in weeks. That speed came from years of trust built through previous fund returns.
Red flags: If a GP struggles to raise their next fund, it means LPs lost confidence. Poor returns kill fundraising. Anthropic, OpenAI, and xAI keep attracting billions because their GPs have LP networks that believe in the AI thesis.
Green flags: When multiple top-tier GPs compete for allocation in a startup, LPs are giving those GPs excess capital. This signals strong fund performance and LP confidence in the GP’s judgment.
The Bottom Line
General Partners manage money. Limited Partners supply money.
GPs get 20% of profits plus management fees. LPs get 80% of profits but stay passive. GPs work full-time for 10+ years. LPs write one check and wait.
Both need each other. LPs can’t access venture returns without GPs. GPs can’t invest without LP capital.
When you read that an AI startup raised $2 billion, remember: A GP firm led the deal, but pension funds and endowments funded most of it. That’s how venture capital actually works.
The next time you see Anthropic or OpenAI announce a mega-round, you’ll know the players behind the headlines.