This episode is also available as a blog post: https://10leaves.ae/publications/difc/vc-fund-structures-in-uae-vc-fund-formation-vehicles

C funds are typically structured as closed-end investment vehicles. The fund’s prospectus permits it to raise capital commitments during a limited period, that usually ranges from 6 to 18 months. The fund then ‘closes’, that is, does not accept any further investor commitments once this period is completed.

Normally, the commitments are not funded all at once, but are ‘called’ in by the fund manager on an ‘as-needed’ basis, so that investments can be made during the ‘investment period’. These are called ‘drawdowns’, and typically done in 3-4 tranches. Drawdowns should also accommodate the fees and expenses of the fund.

Most funds call for at least 25% of the capital commitments during the time of subscription, with further drawdowns being made in a maximum of 3-4 tranches.

In many countries, venture capital funds are formed as Limited Liability Partnerships, with a General Partner managing the investments – akin to a fund manager in an investment company structure. Commonly known as the GP/LP structure, they are advantageous since they are ‘pass-through’ entities for tax purposes and not subject to corporate income tax. In these cases, all income, profits and deductions are taxed once at the investor level only. Also, the liability of Limited Partners is limited to their capital commitments and share of the fund’s assets.