What is Key Person Clause?
Key Person Clause
A Key Person Clause is a provision in a venture capital fund's agreement that prohibits the fund managers (GPs) from making new investments if designated key partners leave the firm.
Why It Matters for Startups
Directly dictates the cap table and dilution structure during fundraising; understanding Key Person Clause helps founders model equity distributions when structuring rounds for vc fund partnership agreements and lp protection.
Detailed Deep Dive
A Key Person Clause is a provision in a venture capital fund's agreement that prohibits the fund managers (GPs) from making new investments if designated key partners leave the firm, protecting Limited Partners.
Frequently Asked Questions
Q:Why do LPs demand a Key Person Clause?
LPs invest in a VC fund because of the specific track record and expertise of the founding partners; their departure changes the risk profile.
Q:What happens when a Key Person Clause is triggered?
The fund's investment period is suspended until a replacement manager is approved or the LPs vote on how to proceed.
Quick Facts
- CategoryFunding
- Key ApplicationVC fund partnership agreements and LP protection
Coverage Trend12 Weeks
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