A well-negotiated LPA contains several structural protections that sophisticated LPs will insist upon. Key person provisions suspend or terminate the investment period if one or more designated senior investment professionals depart the fund, giving LPs a governance lever in the event of management disruption. Removal-for-cause provisions — and no-fault removal with a supermajority LP vote — allow LPs to remove the GP in extreme circumstances, with for-cause removal typically carrying severe economic consequences for the departing GP. No-fault dissolution provisions, negotiated separately, allow a specified percentage of LPs (often 75–80% by commitment) to wind down the fund even absent GP misconduct. LPAC rights to approve or ratify conflict transactions are a floor, not a ceiling — Gurpreet Bal advises GPs to provide clear, workable conflict procedures rather than resist them, as ambiguity in this area creates more long-term risk than the provisions themselves. Excuse and exclusion rights allow individual LPs to opt out of specific investments that would cause legal, tax, or regulatory problems for that LP, and are standard in institutional fund formation.
Most-favored-nation clauses entitle an LP to receive any more favorable terms granted to other LPs of a comparable class or commitment size. In their broadest form, MFN provisions are bilateral and automatic — when a new side letter grants a term to one LP, every MFN-holder is entitled to elect that term for themselves within a defined notice period. Gurpreet S. Bal advises GPs to narrow MFN provisions carefully: limiting them to economic terms (rather than all terms), carving out FOIA provisions and regulatory accommodations that are LP-specific, tiering MFN rights by commitment size, and ensuring that certain bespoke terms — such as a commitment to seat an LP on the LPAC — are explicitly excluded from MFN eligibility. Failure to manage MFN triggers can result in fee discounts or co-investment rights promised to a single large LP silently cascading to a far larger portion of the fund, materially affecting GP economics and operational burden. Tracking side letters and MFN triggers in a structured side letter matrix is essential discipline for any GP closing more than a handful of institutional investors.
Co-investment rights — which allow LPs to invest alongside the fund in specific portfolio companies on a pro-rata or dollar-amount basis — are among the most actively negotiated side letter provisions. Large institutional LPs and family offices frequently demand co-investment rights as a condition of a significant commitment, viewing them as a mechanism to access deal flow at favorable economics (typically no management fee and no carry on co-invest capital). Gurpreet Bal advises GPs to grant co-investment rights as a best-efforts obligation rather than an absolute right, and to specify that the GP has sole discretion to determine whether co-investment capacity exists in any given deal. Information rights side letters typically require the GP to provide quarterly financial statements, annual audited financials, capital call and distribution schedules, and portfolio company updates in a specified format. Government LPs subject to FOIA disclosure requirements often request provisions allowing them to seek confidential treatment for GP-provided materials, a request the GP should accommodate with appropriate limitation-of-liability carveouts.
As fund sizes grow and LP rosters diversify, side letter proliferation becomes a material operational and legal risk. A fund closing with thirty or more institutional LPs may carry dozens of side letters with overlapping, sometimes conflicting, provisions. Gurpreet S. Bal advises fund managers to approach side letter management as an ongoing compliance function, not just a formation-stage exercise. Best practices include maintaining a current side letter matrix mapping every LP-specific obligation, designating a point person responsible for tracking notice deadlines, MFN elections, and reporting obligations, and building side letter review into the GP's annual compliance calendar. ERISA-regulated investors — pension funds and endowments subject to the Employee Retirement Income Security Act — require special attention: if "benefit plan investors" hold 25% or more of any class of fund interests, the fund's assets become "plan assets" subject to ERISA's fiduciary standards, dramatically increasing the GP's compliance exposure. Maintaining the benefit plan investor threshold below 25% is a structural fund management obligation that begins at first close and continues throughout the fund's life.
Gurpreet S. Bal is a Partner at Foley and Lardner LLP in Silicon Valley, where he advises venture funds, fund managers, founders, and investors on fund formation, venture financings, M&A, and corporate governance. He has represented clients in hundreds of transactions with aggregate deal value exceeding $60 billion across AI, semiconductors, fintech, and emerging technology.