10.1.5: Installment Payments

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Abstract

An investment partnership typically does not invest its capital all at once; the process of screening and selecting investments may take several years before the partnership is substantially invested. (The partnership is seldom fully invested since significant cash must be held in reserve for follow-on investments in portfolio companies needing extra cash.) Accordingly, it is customary to take the investors' contributions down in installments, or tranches, to use a popular term on Wall Street. In bygone times, the agreement typically provided that, say, one-third of the committed capital was due on organization and the GPGP could call for the remainder in, say, two installments "estimated to occur" in the second and third year of the partnership's life.[1] That format is no longer a la mode; with rare exceptions, investors put up a small percentage of required capital upon organization and calls are made thereafter on a