Fund Structure
Side Letter
A supplemental agreement between a GP and specific LP modifying standard fund terms — granting MFN rights, co-investment rights, or fee discounts for that LP.
A side letter is a supplemental agreement between a VC fund GP and a specific LP that modifies or adds to the standard terms in the Limited Partnership Agreement. Common side letter provisions: most favored nation (MFN) rights (the LP receives any better terms negotiated with subsequent LPs), co-investment rights (right to invest alongside the fund in specific deals), reduced management fees or carry (for large LPs or anchor commitments), enhanced reporting or information rights, and LPAC membership. Side letters create complexity: different LPs have different economic terms, and MFN provisions can cascade as each new LP's side letter potentially triggers improvements for all prior MFN holders. Well-managed VC funds track side letter obligations carefully to ensure consistent compliance.