| > It’s not acceptable to say you’ll invest in a company and then go fundraise to fulfill that commitment When a VC “raises” capital, they don’t get a box of cash. Instead, their LPs sign commitments. When the VC signs a subscription agreement with a company, they “call” that capital from their LPs. LPs are then obligated to supply it promptly so the VC can meet its obligation to the company. This is done to separate cash management and investment. (While the cash sits waiting, one investor may want it in CDs; another in Treasuries. Mingling that risk with the core activity of VCs, picking great ventures, isn’t worth it.) OP is saying the LPs, as part of their commitment, may have had an out in their paperwork. VC signed subscription agreement. VC called money. LPs said “no, we’re exercising this clause to delay or not give you that money.” TL; DR a round isn’t raised until it’s closed. Disclaimer: I am not a lawyer. This is not legal advice. It outlines a hypothetical and does not necessarily represent the facts and circumstances of 500 Startups. |