Unlike most hedge funds, private equity and venture capital firms’ investment holdings are often not liquid. As a result, private equity and venture capital funds typically lack redemption rights and are structured to have a short life cycle, ranging from 7 to 15 years. The fund management will raise capital for the fund, deploy it into investments, hold those investments, and ultimately sell them and return the capital to the fund’s investors over its life cycle. 

When it comes to the marketing period, a management of a new fund’s initial responsibility is to raise capital for the fund. This process begins before the fund is established. The fund’s terms will be determined by the manager, who will have legal counsel create the offering documentation (which include the limited partnership agreement, the private placement memorandum, and the subscription agreements). 

The fund will then reach out to potential investors, and if sufficient interest is created, an initial close will be held, at which point the fund will commence operations and the initial investors will be admitted as partners. However, the marketing period for many funds extends beyond the initial closure, often from 6 to 18 months, in order for the fund to raise additional money in future closings. If the fund hits its fundraising cap, the marketing period may end sooner.

Alvarez & Diaz-Silveira LLP is a corporate law firm in Miami, focusing on international and domestic M&A, finance, real estate and corporate immigration. If you or your business needs legal advice, contact an M&A Attorney in Miami for help.