The Legal Shield: Why VCs Hate Admitting Their LPs Are "Owners"
- Aki Kakko
- 5 minutes ago
- 3 min read
There is a fascinating semantic battle happening in Venture Capital right now. It usually stays hidden in the fine print of Limited Partnership Agreements (LPAs), but recently, it spilled out into the open on X. The debate centers on a seemingly simple question: Is a Limited Partner (LP) an "owner" of a Venture Capital fund? Industry insiders, like investor Michael Jackson, argue that calling an LP an "owner" is not only incorrect but demonstrates a fundamental misunderstanding of business. The argument goes that LPs are passive; they are clients, not bosses. But this defense relies on a deliberate conflation of "management" and "ownership." It is a linguistic shield used to protect VCs from the moral and reputational weight of the money they take. Here is why the "LPs aren't owners" narrative is technically wrong, practically misleading, and ethically convenient.
To understand the gaslighting, you have to separate the two entities involved in every VC deal:
The Management Company (The GP): This is the "Firm" (e.g., Sequoia, Andreessen Horowitz). They hire the partners, pay the rent, and pick the startups. LPs almost never own a piece of this business.
The Limited Partnership (The Fund): This is the legal entity that holds the assets (e.g., "Sequoia Capital Fund XVII, L.P.").
If you read a standard LPA, the language is clear. LPs own "units" or "interests" in the partnership. In a liquidation event, the assets belong to the LPs (minus the GP’s carry). To argue that the people who hold the equity and receive the proceeds are not "owners" is, to borrow a phrase from the debate, "pedantic nonsense."
The "Passive" Myth
The primary defense for the "LPs are not owners" crowd is that LPs are passive. They don't sit on the investment committee; therefore, they shouldn't be saddled with the title of "owner." But since when does "passive" negate ownership?
If you buy stock in Apple, you have zero say in the next iPhone design. You are passive. You are still an owner.
If you buy an apartment and hire a property management company to run it, you are passive. You are still the owner.
VCs rely on this "passive" distinction to create separation. They want the prestige of the capital without the association of the source.
Why This Semantics Battle Matters
Why are insiders so angry when reporters or analysts use the word "owner"?
Because "Owner" implies a relationship.
If an LP is just a "client" or a "passive investor," the VC is simply a service provider. It’s a transactional relationship. But if an LP is a "co-owner" of the fund, the dynamic changes. It implies that the GP and the LP are in business together. This becomes explosive when the LPs are controversial figures or entities. In the recent debate, the context was reporting that linked controversial figures (like Jeffrey Epstein) to tech leaders via fund structures. If Epstein is just a "passive client," the VC can shrug and say, "We just manage money." If Epstein is a "co-owner of the fund," the VC is his business partner.
The "Accidental" Investor
The most disingenuous part of the "LPs aren't owners" argument is the implication that LPs just show up.
VCs do not find money on the sidewalk. They spend months, sometimes years, actively selling to LPs. They build pitch decks, fly to meetings, and dine with these individuals. They know exactly who they are bringing into the partnership.
Clarity Of Ownership
At Meritocratic.Capital, we believe in transparency. That means looking past industry jargon to the economic reality. Accusing reporters or analysts of "not knowing how business works" because they refuse to use the industry's preferred euphemisms is a form of gatekeeping. It is true that LPs do not manage the VC firm. But they are the economic owners of the fund's assets. VCs serve at the pleasure of their LPs, and the LPs profit from the VCs' work.
Pretending that this isn't an ownership relationship isn't "industry expertise." It’s just a legal shield.
