How much capital should each partner deploy per year

What GP Load is

GP Load is the amount of capital, in millions of dollars, that each General Partner is responsible for deploying per year of the fund's investment period. It is the one figure in this engine whose arithmetic is worth showing, because it is arithmetic rather than calibration and because a General Partner can compute it on the back of an envelope.

A $100 million fund with a four-year investment period and two General Partners carries a GP Load of $12.5 million. That is the capital each partner is on the hook to place, every year, for four years.

What this check reads

The check asks whether that figure sits inside a workable range, and it is bounded on both sides. Too high and each partner is writing more checks per year than they can responsibly source, diligence, and then serve once the money is in.

The lower bound is a matter of partnership economics rather than a published result. A firm carrying partner-level economics for an amount of capital that a smaller group could place well is making a choice about how it wants to be structured, and the model reads that as a configuration worth examining rather than as a mistake.

The upper bound is the one that bites more often, and it connects directly to the board capacity checks. Capital deployed per year turns into companies, and companies turn into relationships, board seats, and follow-on decisions that persist long after the check clears. A partner deploying at a very high rate is not only doing more diligence this year. They are accumulating an obligation that compounds across the life of the fund.

What the research says about partner capacity

The upper bound has real support, though the published work measures companies per investment professional rather than capital per partner per year, and the two are related only through average check size.

Fulghieri and Sevilir give the theoretical account. In their model the venture capitalist's human capital is a fixed resource in limited supply that cannot easily be expanded, and both the investor's effort and the entrepreneur's are essential to a company's success. A larger portfolio spreads that fixed resource across more companies, diluting the value added to each, and weakening the incentives of the investor and the founder at the same time. The result they derive is that a venture capitalist with capital sufficient for a large portfolio may still be right to stay small, because the money is not the binding constraint.

Cumming measures the same thing across 214 venture funds. His finding is that adding one more manager to a limited partnership buys only 0.266 additional portfolio companies, which is to say it would take roughly eight additional partners to add two companies. He finds diminishing returns to scale throughout, and finds them most pronounced for limited partnerships expanding their portfolios quickly. He also measures the conversion the page describes, that roughly every ten million dollars raised turns into about two more portfolio companies, and finds that the practices which deepen involvement all shrink the portfolio: more staging, more syndication, more geographic dispersion, and a larger ownership share in each company each reduce the number of companies a fund holds.

Barnes and Menzies show that allocators already look at this. In interviews with 21 European fund-of-funds managers, the venture team scored 9.6 out of 10 as an evaluation criterion, ahead of track record at 7.1 and investment strategy at 7.0, and the managers described examining how work was allocated within the team rather than only who was on it.

One note on what has and has not been tested. Cumming constructs the same quantity this check reads, capital divided by managers divided by years, and finds it does not significantly predict how many investments each manager makes per year. What his work does establish is the capacity constraint underneath it, that additional partners buy fewer additional companies than a proportional relationship would imply. This check reads a figure that the published work has not bounded directly.

Why the figure is useful even without the bands

GP Load is worth computing for your own firm regardless of what the model makes of it, because it converts three abstractions into one concrete number. Fund size is a headline. Investment period is a legal term. Partner count is an org chart. GP Load is the thing a partner actually experiences on a Tuesday, and most General Partners have a well-calibrated instinct about whether the number they get is comfortable.

It also makes fundraising arithmetic legible. A firm raising a larger next fund without adding partners is raising its GP Load proportionally, and a firm that adds a partner is lowering it. Both are reasonable moves, and both are easier to discuss with a number attached.

What this check does not say

The check reads General Partners, meaning partners holding both economic and decision rights, and not the wider investment team. A firm with two General Partners and six other professionals carries the same GP Load as a firm with two partners and nobody else, because the check is about who is accountable for deployment rather than who does the work. The team capacity questions are read separately by the board and platform checks.

It also reads the declared investment period rather than the pace the fund is actually deploying at. A fund running ahead of or behind its stated schedule is doing something this figure does not capture, and the Temporal Layer is where that shows up over time.

Sources

• Size and Focus of a Venture Capitalist's PortfolioPaolo Fulghieri and Merih Sevilir, Review of Financial Studies 22(11), 2009The formal account of why a venture capitalist's limited human capital, rather than available capital, sets the size of a portfolio.
• The Determinants of Venture Capital Portfolio Size: Empirical EvidenceDouglas J. Cumming, Journal of Business 79(3), 2006Measures how much portfolio capacity an additional partner actually buys, and what practices reduce it.
• Investment into venture capital funds in Europe: An exploratory studySimon Barnes and Vanessa Menzies, Venture Capital 7(3), 2005How limited partners weigh the investment team against track record when selecting a fund.