GP / LP (General Partner / Limited Partner)

Definition

The two sides of a fund: one runs it, the other puts up the money.

Why It Matters

In a traditional search the searcher is effectively the general partner and the backers are the limited partners, and the waterfall is what enforces the split between them. The limited partners take their capital and a preferred return first, and the general partner earns carry for the work after that, which is why the searcher's outcome depends far more on the deal's performance than on the headline percentage. It also explains the governance: passive capital still votes on the things that protect it.

In numbers: Limited partners putting in $2M against a searcher's $50,000 supply about 98% of the money while the general partner does all of the work, which is the imbalance carry exists to price.