It’s not a huge deal, at least, not at a larger firm.

First, you can get a loan. Silicon Valley Bank and others do these loans as a courtesy. It’s backed by management fees, so it’s a pretty low risk proposition. Generally, the payments on the loan will be materially less than your salary, so you’re still ahead.

Second, in older firms, the legacy GPs often step-up. They often put in more than their pro-rata share, often a lot more. The new GPs often will put up only the minimum necessary.

Third, in smaller funds especially, LPs don’t love it, but you can still net contributions against fees. This isn’t quite as advantageous from a tax and gain perspective as it used to be, but plenty of funds, especially smaller ones, still net contributions against fees. This means no money out of pocket, and some tax advantages. This is better than a loan. LPs don’t love it, because then it’s not really as much skin in the game. But they won’t oppose it if they want to invest in the fund.

Fourth, non-GPs don’t usually have to commit anything or not much. Not every “partner” is a GP. If you don’t have any success yet, if you don’t have the capital to contribute … that may just mean you are not ready to be a GP in a bigger fund. So another solution is to have carry, maybe even lots of carry … but not be a GP. The LPs usually won’t care about capital commits from non-GPs at all.

So it is an issue. GPs have to put “skin in the game” in their funds. But it’s usually not a total gating item to anyone with enough success and track record to be a GP.

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