What is a drawdown?
A drawdown (also called “capital call”) is the GP’s formal demand for LPs to transfer a portion of their committed capital to the fund. Unlike hedge funds that hold all LP capital from day one, venture funds typically call capital only as needed — over 4-6 years matching the investment period. Drawdowns are the operational mechanism that bridges LP commitments and actual fund deployment.
Drawdown mechanics
The Limited Partnership Agreement (LPA) defines drawdown rules: typical 10-business-day notice, pro rata across LPs, with a specified minimum and maximum percentage per call. Each call notice specifies the amount, due date, and intended use (investment, expense, or carry funding). LPs must wire on time or face penalties.
The default mechanism
An LP that fails to fund a drawdown triggers default provisions: typical 30-day cure period, then escalating consequences — loss of distributions, forfeiture of committed capital, sale of the defaulted LP’s interest at a discount. Sophisticated LPs (pensions, sovereign funds) almost never default; family offices and HNW LPs occasionally do during liquidity crunches.
Subscription credit lines
Modern GPs increasingly use subscription credit lines — bank facilities secured against LP commitments — to delay drawdowns by 6-12 months. This artificially inflates reported IRR (capital appears deployed for less time) without changing real economics. ILPA standards now require GPs to disclose the IRR impact of these lines.
Why founders should care
A GP heavily reliant on subscription lines may be slower to make follow-on commitments — the bank facility caps how much capital they can deploy in any given quarter. Understanding your investor’s drawdown cadence helps in timing follow-on rounds.
Related: Capital Call, Fund Returns, IRR, Preferred Return.