Co-investment is direct participation in a portfolio company’s financing by an investor investing alongside— not through—the GP’s main fund.

How it works

A GP sourcing a deal may offer co-investment slots to existing LPs, often pro rata to fund commitments. Capital flows through an SPV or direct subscription on the same price and terms as the fund (minus fee load). Co-investors typically pay little or no management fee and reduced carry on that tranche. Some family offices and strategics co-invest without being LPs in the flagship fund, subject to the GP’s conflicts process. The company experiences one lead term sheet; co-investors follow the lead’s diligence and documentation. Allocation is discretionary—hot deals are oversubscribed. Co-investment differs from secondary purchases; here capital is primary funding at round pricing.

Why it matters

• Founders: Extra capital without parallel negotiations can be efficient. Too many small co-invest entities can clutter the cap table and signing process.
• LPs: Co-investment can boost DPI and let LPs overweight winners, but it concentrates risk and depends on GP allocation fairness.
• GPs: Offering co-invest can win competitive processes and deepen LP loyalty; policies must avoid favoritism and regulatory issues.

Common mistake

LPs treating co-investment as guaranteed. Funds often cap co-invest per LP and prioritize strategic relationships—allocation is a privilege, not a contractual right unless explicitly granted.

Related ideas

Co-invest fund, SPV, syndication, pro rata rights, and fee offset policies connect to co-investment practice.

Related ideas

Full guide: How does LP co-investment work?.