The players:

• Limited Partners (LPs) — the capital providers. Pension funds, university endowments, foundations, family offices, wealthy individuals. They commit capital to the fund but have no say in investment decisions.
• General Partners (GPs) — the VC partners who raise the fund, source deals, make investment decisions, sit on boards, and manage the portfolio.
• Management Company — the legal entity the GPs operate through.

The economics:

• Management fee (typically 2% of fund size per year) — covers salaries, offices, travel, operations. A $200M fund generates $4M/year in management fees regardless of performance. This is guaranteed income.
• Carried interest (typically 20% of profits) — the GP's share of investment returns above the committed capital (plus a hurdle rate in some cases). This is where the real money is for VCs.
• Fund lifecycle (~10 years) — typically 3-5 years investing, then 5-7 years managing and exiting. VCs need liquidity events within this window.

Implications for founders:

1. VCs need home runs, not base hits. A 2x return on a small investment doesn't move the needle for a $200M fund. VCs are optimizing for 10x-100x outcomes.
2. Fund lifecycle creates urgency. A VC investing from a fund that's 7 years old needs exits soon — this can pressure premature sales.
3. Portfolio construction matters. A VC with 30 companies can't give all of them equal attention. Where you sit in their portfolio determines the support you get.
4. Follow-on reserves. VCs reserve capital for follow-on investments in their best companies. Your VC's willingness to lead or participate in your next round is a signal of their conviction.
5. Management fees create misaligned incentives. A GP collecting $4M/year in fees isn't desperate to return capital — they're financially comfortable regardless.