General Partner (GP)

An annual fee charged by a fund manager (general partner) to cover operational costs, typically calculated as 1.5% to 2.5% of committed capital during the investment period and assets under management thereafter. Management fees are separate from carried interest.

The year in which a private equity or venture capital fund makes its first investment or its final close. Vintage year is used to group and compare fund performance because macroeconomic conditions at the time of investment significantly influence returns.

A private equity and venture capital performance metric measuring the ratio of cumulative cash distributions returned to investors relative to the capital they have contributed. A DPI of 1.0x means investors have received back their original investment.

The pattern of returns typically experienced by private equity and venture capital funds, where early years show negative returns (due to fees and unrealised investments) before turning positive as portfolio companies mature and generate exits. The shape of a fund's J-curve reflects its deployment pace and value creation speed.

A business in which a private equity, venture capital, or growth equity fund has invested. Portfolio companies receive not only capital but also strategic support, operational guidance, and governance oversight from the fund, with the aim of accelerating value creation and achieving a profitable exit.

The systematic monitoring and management of a collection of investments. For VC and PE firms, portfolio oversight includes tracking financial performance, productivity metrics, intangible asset development, and strategic milestones across all portfolio companies.

A U.S. tax provision allowing investors in qualifying small businesses to exclude a portion of capital gains from federal taxation upon the sale of stock held for more than five years.

The structured sequence in which investment returns are distributed among fund stakeholders, typically flowing from return of capital to limited partners, then preferred return, then a catch-up allocation to the general partner, and finally a profit split based on carried interest terms. The waterfall structure is central to fund economics and LP/GP alignment.

What is a private equity fund and how do they use valuations?

PE funds buy companies at entry multiples, operate them to improve cash flows and competitive position, then exit at higher multiples — valuations are critical for entry/exit decisions.

What are liquidation preferences and how do they affect founders?

Liquidation preferences give investors priority over common shareholders in an exit, ensuring they recover their investment first — participating preferences can significantly reduce founder payouts in moderate exit scenarios.