Committed capital obligates investor in venture capital fund to contribute money to the fund. It is an agreement in form of contract. The contract may specify whether investor should pay at one time or over a period of time, e.g. multiple years. Usually committed capital is divided in parts which should be paid yearly (3-5 years). The capital is then invested, used to cover fees, etc.
Committed capital can be invested in two forms: with or without knowledge of investor. In many venture capital funds managers can invest money without detailed information for investors on what they were spent. The investors gets only information about rates of return. However it is also possible, to inform investors in details, especially when managers make long-term investments rather than speculation on the market. The rules should be specified in the contract.
- Kaplan, S. N., & Schoar, A. (2005). Private equity performance: Returns, persistence, and capital flows. The Journal of Finance, 60(4), 1791-1823.
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