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A venture capital limited partnership is a form of partnership that is created to provide resources for the launching of a new business endeavor. The limited partnership will include two or more partners who have made specific commitments to the venture. Within the terms of the partnership, each investor is only accountable for the amount of his or her investment in the startup project, rather than liable for the broader debts that the new venture may incur.
Raising venture capital is a common approach to funding new startups. Interested groups of investors form the limited partnerships in order to create a bank of resources that will cover the costs of launching the new business effort, and possibly to also sustain production until the business begins to turn a profit. As part of the venture capital limited partnership, the investors normally do not expect to realize a return on the investment until after the company becomes profitable. At that point, the financially stable company begins to pay off the initial investment, following the terms that were spelled out in the founding documents for the partnership.
One of the benefits of a venture capital limited partnership is that it limits the liability of the investors. Because each investor is only accountable for an amount up to the total of his or her investment, there are no worries about plunging into deep debt if the business strategy does not become profitable. The amount of the loss in a venture capital limited partnership is no more than the amount of the investment, and can usually be used as a tax write-off if necessary.
The exact structure of a venture capital limited partnership will include all the basic elements required by law, but above and beyond those requirements may be configured to the preferences of the investors. For example, the investors can choose to determine how much investment provides how much control in the company, as well as how many votes each investor will be able to exercise.
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