ACCA Advanced Financial Management (AFM) Practice Exam

Who are typically classified as limited partners in the venture capital fund structure?

1. Investment managers

2. External investors

3. General partners

4. Advisory board members

The correct answer is: External investors

In the context of a venture capital fund structure, limited partners are typically external investors who provide the majority of the capital but do not participate in the day-to-day management of the fund. These external investors can be institutions, such as pension funds, endowments, or wealthy individuals, who contribute funds to the venture capital fund with the expectation of earning a return on their investment as the fund makes successful investments in startups and emerging companies. Limited partners have a liability that is limited to the amount they invest, which protects their personal assets from any losses incurred by the fund. This contrasts with general partners, who manage the fund and make investment decisions, carrying unlimited liability for the debts of the partnership. Understanding the role of limited partners is crucial for anyone studying venture capital, as the dynamics of capital contribution and risk allocation are foundational to how these funds operate. The other roles mentioned, such as investment managers, general partners, and advisory board members, do not fit the classification of limited partners due to their active involvement in the fund's operations or management.