As an LP you pre-commit to a certain level, and when the capital call comes you perform or you will be found to be in default when a whole pile of clauses kicks in that you really do not want to have to deal with. You will have to have an extremely good reason (such as being already bankrupt) to be able to avoid a capital call that you have committed to.
Such as opening the small talk a Zoom call by saying ‘it’s been a very difficult month for us.’
There are very few VCs who won’t be influenced by a signal even as simple as this one.
The people running these funds are not idiots and would not willingly put themselves into a position like that.
Also, if credibly alleged there won't be a next installment of that particular fund.
On every capital call there is a statement that lists the total amount and the pro-rata and if the ratio there would suddenly change that would be a breach of contract. As an LP you know up front how big a chunk of the total fund your commitment will be with possible upside if the fund is oversubscribed and if it is undersubscribed it either won't launch of you will be made aware of the change and given the option to walk away.
To see the fund effectively shrink post launch and the shortfall pushed onto the smaller LPs is ridiculous, especially if LPs were not previously told that this could be the case.
The LPs which the user above refers to are the APGs, the PFZWs type.
I have been part of 222 VC/PE deals to date (that's not a typo, just a coincidence) and not once has an LP reneged on their obligation to honor a capital call without penalty. That's not saying it doesn't happen, it may well happen, or it may have happened and it was kept so quiet that nobody picked up on it (which is somewhat believable, because it would reflect very badly on the fund).
Just to give you one example: a VC enters into a deal, signs a non-binding terms sheet conditional on doing DD, goes through a full DD and then has to back out of the deal because a large LP does not honor their commitment. The fall out from that would be massive.
What is far more likely to happen is that a VC can't find a good way to spend the funds committed capital. In that case there might be extensions of the funds run or they might end up simply not calling up the available capital. This I've seen a couple of times. But an LP that refuses a capital call I've yet to see. I've even seen an estate that was held to perform when an LP ended up with the very best reason for non-performance of all.
Also in general when government is involved rules don't apply to it. 80% or more of the amount of money that LPs as a whole administer are either Govt. Pension Funds or SWFs.
So in the case of big LPs it's one of the rare cases where both the above rules are at play to give them carte blanche.
Again, show me. Just. One. Contract. I'll be happy to read the whole thing even if it is 200 pages.
Oh and just to be clear about this: if smaller LPs were on the hook for the full amount but larger LPs could walk at will how big do you think the chances are that those smaller LPs would still want to be part of such a fund?
Because clearly if a large contributor has a reason to back out they may have an even better reason to do the same.
Personally I would not invest in a fund where a larger LP can back out at will.
There isn't an alternate reality where contracts are meaningless.
Is this in Europe?