An investment restriction is a contractual boundary in a fund’s limited partnership agreement limiting the types, sizes, or locations of investments the GP may make.

How it works

Restrictions encode the fund’s marketed strategy into enforceable rules. Common examples: stage limits (seed only, no growth equity), sector caps (healthcare focus, no crypto), geographic requirements, maximum single-company concentration, and prohibitions on public securities or leverage at fund level. LPs rely on restrictions to prevent GPs from chasing fad sectors with their capital. Violations may require LP advisory committee consent or constitute a default. Founders encounter restrictions when a firm loves the deal but the current fund cannot invest — wrong stage, full concentration, or sector outside mandate — leading to referrals to affiliate funds or pass decisions. Side letters for large LPs sometimes add personalized restrictions.

Why it matters

• Founders: Ask early whether you fit the fund’s mandate — vintage, stage, sector, and check size — not just partner interest.
• Investors / LPs: Restrictions are only as good as enforcement. Style drift without LP approval erodes trust and re-up decisions.

Common mistake

Pitching the wrong fund within a multi-fund platform. Restrictions are per-fund; a growth fund cannot deploy seed strategy even if partners overlap.

Related ideas

Investment policy, LPA, concentration limits, and investment period define deployable capital scope.