Inno-dictionary: What is GP / LP?
The help from a venture capital fund (VC) may be needed for business development during the prototype stage of a start-up. A VC is formed by GPs (General Partners) and LPs (limited partners).
GP (General Partner):
A GP is responsible for the practical operation of a VC which include planning investment directions and recruiting LP to provide funding. When sufficient funding is raised, a GP will search for investment projects and “add value” to the selected ventures, such as expanding their network.
A GP is entitled to receive a 1.5-2.5% management fee on an annual basis from the total investment of the VC. When the VC withdraw from a profited investment, a GP may receive a share profit of over 20% of the investment return; if the investment of the VC recorded a good performance, a GP may even receive an amount of 30% or more. The shared amount is also called carried interest.
LP (Limited Partner):
A LP is mainly an institutional investor. Usually he/she is required to identify himself/herself under the “Securities and Futures (Professional Investor) Ordinance”, which means he/she owns an investment portfolio of not less than HK$8 million (please refer to the webpage of Investor and Financial Education Council for more information).
The limited partnership fund (“LPF”) regime is introduced on 31 August 2020 to attract investment funds (including private equity and venture capital funds) to set up and register in the form apart from limited partnership in Hong Kong. An eligible fund should have one general partner and at least one limited partner. The LegCo has also passed a bill in April 2021 to provide tax concessions for carried interest distributed by eligible private equity (“PE”) funds operating in Hong Kong. For more information on VCs, please visit Startmeup.hk.
Published by the Innovation, Technology and Industry Bureau Facebook Page, the “Inno-dictionary” series aims to facilitate startup newbies to understand the jargons related to entrepreneurship as well as innovation and technology.