What are Limited and Extended Partners?

In the exciting and competitive world of startups, Venture Capital plays a crucial role in providing financing and support to high-growth potential emerging companies.

Within this ecosystem, there are different actors who play key roles, including Limited Partners (LP) and Extended Partners (EP).

In this article, we’ll delve into the details of what it means to be an LP and an EP in the context of Venture Capital in Mexico, exploring their responsibilities, benefits, and differences.

Limited Partner (LP)

A Limited Partner, or LP, is an investor who participates in a Venture Capital fund by providing capital but does not have an active role in decision-making or daily management of the fund.

LPs are typically financial institutions, pension funds, endowments, family offices, or high-net-worth individuals. They commit capital to the fund and agree to a lock-up period during which they cannot withdraw their investment.

Additionally, LPs usually receive periodic reports on the fund’s performance and may participate in key decisions such as approving new investments or exiting existing ones.

Extended Partner (EP)

An Extended Partner, or EP, is an investor who, in addition to providing capital to the Venture Capital fund, also plays an active role in decision-making and investment management.

Unlike LPs, EPs are individual investors who bring their expertise, knowledge, and networks to support the growth of the startups they invest in.

EPs often have extensive experience in the business sector or specific areas such as technology, marketing, or finance. Their active involvement can include strategic advice, connections to potential clients, talent recruitment, participation on boards of directors, and support in exit strategies, whether through acquisitions or initial public offerings (IPOs).

EPs bring added value to the startups they invest in, as their experience and knowledge can help overcome challenges and accelerate growth. Moreover, their active participation can generate synergies and collaboration opportunities between startups and other companies or investors in the ecosystem.

Key Differences between LP and EP

The main difference between LPs and EPs lies in their level of participation and decision-making. LPs are passive investors who participate in multiple Venture Capital funds, allowing them to mitigate risk by diversifying their capital across different companies and sectors.

On the other hand, EPs tend to have a higher concentration of their investments in a limited number of companies in which they are more involved, enabling them to have a more significant impact on the growth and development of those companies.

Both Limited Partners and Extended Partners play essential roles in the Venture Capital ecosystem in Mexico. LPs provide capital and trust in the fund’s management, while EPs bring capital, expertise, and connections to drive the growth of startups.

This collaboration between LPs and EPs is crucial for the success of emerging companies and the development of the entrepreneurial ecosystem in Mexico. By understanding the responsibilities and differences between these roles, investors can make informed decisions and effectively contribute to the growth and development of startups in the country.