Understanding How GPs and LPs Drive Private Equity Growth

• GPs and LPs form the foundation of private equity. General Partners manage the fund, while Limited Partners provide the capital. Together, they shape how institutional investment works.
• Their goals and risks differ, but must align. GPs take on operational risk and accountability, while LPs bear financial exposure. Success depends on shared strategy and governance.
• Governance and transparency define strong partnerships. LPs expect disciplined reporting, and GPs rely on portfolio companies to maintain compliance. Alignment builds trust across all stakeholders.
• Founders must understand both sides to attract smart capital. Knowing how GPs and LPs function helps businesses communicate effectively, negotiate better, and prepare for long-term scale.
• Structured guidance ensures success in private equity relationships. At S45 Club, we help founders bridge the gap between capital and execution, strengthening governance, readiness, and strategic growth.

Private equity has become a vital growth engine for ambitious businesses, offering more than just capital; it brings structure, governance, and long-term partnership. 

But behind every private equity fund are two distinct players who shape its success: the General Partner (GP) and the Limited Partner (LP).

Understanding the difference between these two roles is essential for founders and investors alike. Whether you are raising capital, evaluating a fund, or considering long-term partnerships, knowing how GPs and LPs operate helps you make informed decisions.

This article explains who they are, what they do, how they differ, and why their partnership model matters for business leaders preparing to scale sustainably.

A General Partner (GP) is the manager and decision-maker of a private equity fund. The GP is responsible for raising capital, investing it into portfolio companies, managing operations, and delivering returns to investors, the Limited Partners.

In simple terms, the GP acts as the active leader of the fund, while LPs are passive investors.

Core Responsibilities of a GP

Each step requires not just financial expertise but also strategic leadership and governance discipline.

Structure and Investment Commitment

• The GP usually contributes 1–5% of the total fund capital, aligning their interests with LPs.
• The GP operates under a Limited Partnership Agreement (LPA) that defines its rights, responsibilities, and compensation.
• The GP entity is often structured as a limited liability company (LLC) or corporation to manage risk while maintaining control.

At S45 Club, we guide founders on both sides of this structure, whether they are raising growth capital or preparing to partner with private equity funds. Understanding the GP’s role helps businesses communicate effectively, build trust, and align expectations for long-term success.

Compensation Model of a GP

GPs earn in two main ways:

1. Management Fee: Typically 1.5–2.5% of the total fund size, charged annually to cover operations, salaries, and due diligence costs.
2. Carried Interest (Carry): A share of profits, usually 20% of the fund’s returns after LPs recover their principal and preferred return.

This model incentivises GPs to maximize fund performance and deliver meaningful returns for investors.

Risk Profile

GPs carry a higher risk because they are responsible for fund performance, compliance, and execution.

• If the fund underperforms, the GP may lose credibility and future fundraising opportunities.
• They also have fiduciary duties toward LPs, managing funds responsibly, ethically, and transparently.

In return, successful GPs gain reputation, performance fees, and opportunities to launch larger funds in the future.

Also Read: Growth Capital vs Venture Capital: Key Differences Explained

A Limited Partner (LP) is the capital provider in a private equity fund. LPs commit money to the fund, trusting the General Partner (GP) to invest it, manage it responsibly, and generate returns.

Unlike GPs, LPs do not participate in daily fund management. Their role is primarily financial; they supply the fuel that powers the private equity engine.

Who Can Be a Limited Partner

LPs are typically institutional or high-net-worth investors with long-term investment horizons.Common examples include:

• Pension Funds: Large pools of capital seeking stable, long-term returns.
• Sovereign Wealth Funds: National investment funds investing globally for diversification.
• Family Offices: Wealth management entities investing across sectors.
• Endowments and Universities: Long-term investors allocating funds for sustained growth.
• High-Net-Worth Individuals (HNIs): Individuals participating through private investment networks.

Example: A family office in Mumbai commits ₹200 crore to a growth equity fund managed by a GP investing in Indian manufacturing and logistics companies.

Core Characteristics of an LP

LPs typically review quarterly or annual reports and rely on GPs for transparency and performance insight.

How LPs Earn Returns

• Preferred Return (Hurdle Rate): LPs usually receive a minimum preferred return (often 8%) before GPs earn carried interest.
• Profit Distribution: After the preferred return, profits are shared according to the fund’s waterfall structure.
• Reinvestment: LPs may reinvest returns in follow-on funds, maintaining long-term partnerships with trusted GPs.

For Indian founders who may engage with private equity, understanding LP expectations helps build stronger relationships with investors. Transparency, consistent growth, and sound governance make businesses more attractive to both GPs and LPs.

Also Read: Private vs Public Equity: Key Differences Explained

GP vs LP – Side-by-Side Comparison

While both GPs and LPs are vital to the private equity ecosystem, their roles, risks, and rewards differ significantly. This balance between active management and capital commitment creates the structure that drives private equity funds.

Below is a detailed comparison:

Business Insight

For growing companies and investors, this distinction highlights where value and accountability lie.

• GPs bring expertise and execution, transforming capital into growth.
• LPs bring trust and capital depth, enabling long-term investment cycles.

When both align on goals, timelines, and governance, private equity becomes one of the most efficient engines for business growth.

At S45 Club, we help founders understand how to engage with both sides, building investor trust like an LP, and operating with strategic rigor like a GP. This dual understanding enables better fundraising, stronger governance, and sustainable partnerships.

Also Read: Difference Between Angel Investors and Venture Capitalists

For many Indian SMEs, scaling beyond ₹100 crore revenue requires more than operational excellence; it demands structured capital, governance, and strategic partnerships. 

Understanding how GPs and LPs function helps founders prepare for the world of private equity, where institutional capital meets entrepreneurial ambition.

1. Clarity on Who You’re Partnering With

When an SME engages with a private equity fund, it is effectively partnering with a GP.The GP’s responsibility is to invest, manage, and grow that capital, often bringing more than money:

• Strategic guidance
• Operational oversight
• Access to networks and global markets

Meanwhile, behind the scenes, the LPs are the investors funding the GP’s activities. Understanding this dynamic helps founders align their communication and expectations.

When pitching to a fund, remember that you are not just convincing the GP — you are representing an opportunity that must resonate with the LP’s goals as well.

2. Governance and Reporting Standards

GPs are accountable to their LPs for fund performance. This means that portfolio companies must maintain high levels of transparency, financial discipline, and board governance. For founders, adopting these standards early builds credibility and investor confidence.

What this means for SMEs:

• Maintain clean, auditable financials.
• Adopt structured reporting cycles.
• Build a leadership team that can engage with institutional investors.

These steps not only make a company attractive to private equity funds but also prepare it for future IPOs and international partnerships.

3. Access to Smarter Capital

Private equity partnerships are not just about funding; they are about transformation. GPs bring experience in scaling, market entry, technology adoption, and value creation. 

When founders understand the GP’s objectives, they can better leverage this expertise for faster and more sustainable growth.

At S45 Club, we help founders build this readiness, from aligning financial systems to developing governance playbooks that match institutional investor expectations.

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As Indian SMEs mature, founders find themselves engaging with both GPs and LPs, directly or indirectly. Understanding how to do this effectively can determine the quality and success of these partnerships.

1. Engaging with General Partners (GPs)

When approaching a GP for investment, founders must think like partners, not borrowers.A GP looks for:

• Strong unit economics and growth visibility.
• Clean corporate structures and governance.
• Scalable business models with clear exit potential.

Checklist for engaging a GP:

• Prepare a comprehensive information memorandum (IM).
• Showcase transparent financial performance.
• Highlight governance practices and leadership depth.
• Clarify growth strategy and capital utilization plan.

Example: A manufacturing SME seeking ₹150 crore growth capital should present its scalability story, compliance maturity, and 5-year expansion plan, aligning with the GP’s investment thesis.

2. Interacting with Limited Partners (LPs)

Although LPs rarely engage directly with portfolio companies, founders increasingly meet them during investor conferences or fund roadshows.

When that happens, it’s crucial to understand what LPs care about:

When founders can confidently address LP concerns, they position themselves as institution-ready leaders, not just entrepreneurs seeking funding.

3. Aligning Interests Across the Table

The most successful partnerships arise when founders, GPs, and LPs share a common understanding of:

• Time horizons for value creation.
• Governance expectations.
• Growth strategy and risk tolerance.

When everyone rows in the same direction, capital becomes a catalyst, not a constraint. 

S45 Club bridges these worlds, guiding founders to speak the language of investors and helping funds identify businesses ready for scale, discipline, and impact.

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Private equity partnerships can unlock transformational growth, but without clarity, they can also lead to friction, delays, or lost value. 

Many businesses enter the GP–LP ecosystem without fully understanding the expectations, timelines, or governance obligations involved. Here are some of the most common pitfalls, and how founders can avoid them.

1. Misalignment of Interests

When GPs, LPs, and portfolio companies pursue different goals, partnerships become strained.

• Example: Founders chasing short-term expansion while the GP focuses on structured long-term returns.
• Result: Conflicting decisions on capital use, growth pace, or exit timing.

How to avoid it:

• Align growth timelines and return expectations at the start.
• Discuss exit plans, capital deployment, and governance clearly during negotiations.
• Document all understandings in the term sheet and shareholder agreements.

At S45 Club, we encourage founders to think beyond capital, focus on building shared intent and long-term alignment with investors.

2. Ignoring Governance and Compliance Standards

Many growing businesses underestimate the importance of investor-grade governance. Without robust compliance systems, even profitable firms can struggle to secure funding or maintain confidence.

How to avoid it:

• Build a board that includes independent advisors.
• Implement clear reporting and audit processes.
• Keep financials transparent and compliant with SEBI and RBI norms.

Good governance is not a legal requirement alone; it is a mark of maturity that attracts the right partners.

3. Overlooking Fund Timelines

Private equity funds operate on defined lifecycles, usually 7 to 10 years. GPs aim to invest, manage, and exit within this period. Founders who expect indefinite partnerships often face pressure when the fund nears its exit window.

How to avoid it:

• Understand the GP’s fund stage before signing.
• Plan your expansion and liquidity events around the fund’s timeline.
• Stay open to secondary funding or refinancing options if needed.

Our advisory work often begins with timeline mapping, ensuring founders and investors have a shared calendar for milestones and exits.

4. Focusing Only on Valuation

High valuations can be exciting but may not always reflect sustainable value creation.Some founders prioritize valuation over strategic compatibility with the GP.

How to avoid it:

• Choose investors who bring operational or strategic value, not just capital.
• Evaluate the GP’s track record with similar companies.
• Look for mentorship and ecosystem access, not just cheque size.

A right-fit investor at a fair valuation creates more value than an overvalued deal with the wrong partner.

Private equity works best when every participant, GP, LP, and founder, understands their role and responsibilities clearly.

The General Partner drives execution and performance. 

The Limited Partner supplies capital and oversight.

And the founder of a portfolio company translates that capital into real, measurable growth.

When these roles align, value creation becomes predictable and sustainable.

Know who you are engaging with and what they expect. Whether you are working with a GP or indirectly backed by LPs, clarity, transparency, and governance are your strongest allies.

At S45 Club, we see every capital relationship as a climb, one that demands trust, discipline, and shared purpose.

Through our capital platform, mentorship, and growth playbooks, we help Indian founders engage confidently with the world of private equity, from commitment to execution.

Contact us now