If you’re currently working for a Venture or Private equity firm, you know that the primary goal of your firm is (or should be) crystal clear - To earn an outsized return for your Limited Partners (and as a byproduct of that, earn yourself a lot of $$$ through management fee stacks and carry!!!). Savvy investing, portfolio management, and a dash great deal of luck will all contribute to the success of a fund. Additionally, many financial and administrative tools play a big role in how effective and efficient a firm is. One of these tools is debt financing at the fund level. Over the past few years, I’ve had dozens of conversations with Venture Capital and Private Equity CFO’s related to borrowing at the fund level to support operations. While the basic premise of fund borrowing isn’t novel by any means, there are number of things to consider and understand before entering into a borrowing arrangement for your fund(s). First off, here are the general reasons for signing up for a fund line of credit. 1) Making time sensitive investments: For most CFO’s, the following drill probably sounds familiar - It’s Thursday afternoon, and you get a call that an investment opportunity has surfaced and needs to be funded by Monday. What do you do? You can call capital, but most fund agreements allow LP’s 10 days to contribute capital after a call is made. A fund that is composed of mostly larger institutional LP’s might be in ok shape, but most funds have a LP base that’s comprised of Institutional investors, Family Offices, and High Net Worth individuals. In these situations, Fund lines serve as an administrative tool to bridge between the investment and the capital call coming in. 2) Managing the frequency/size of Capital Calls: From my personal experience as someone who has made small LP allocations into Venture, most LP’s hate (hate,hate,hate) fund managers that manage capital calls ineffectively. I once worked with a firm (who will remain anonymous) that ended up calling capital 26 times in a single year! Capital call lines allow managers to aggregate investments to decrease the frequency of calls. Most Capital Call lines have 90-180 day repayment terms, allowing managers to call capital just a few times a year if preferred. 3) IRR enhancer: As the IRR clock starts once capital is called, the ability to use leverage to defer calls creates for a small bump in IRR . Candidly, I don’t believe this strategy really is that compelling and in almost all cases, shouldn’t be the primary reason for taking on debt at the fund level. Once you net out interest expense, the...

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