VC & PE Glossary
What Is Master-Feeder?
Updated
Definition
Master-feeder is a fund structure where one master fund holds investments and separate feeder funds pool capital from different investor types (US taxable, offshore, ERISA) into that master.
Useful for: Founders, Investors
Master-feeder is a two-tier fund structure in which feeder funds raise capital from distinct LP groups and invest into a single master fund that holds the portfolio.
How it works
Typical setup:
- Offshore feeder (e.g., Cayman) for non-US and tax-exempt investors
- Onshore feeder (US LP or LLC) for US taxable investors
- Master fund (often Cayman) owns startup stakes and executes deals
Feeders buy interests in the master; economics mirror direct master investment after fees and fund expenses. Blocker corporations may sit between master and operating companies to block UBTI for tax-exempt LPs.
GPs prefer one master portfolio to avoid duplicating diligence and capital calls across parallel funds. Legal and admin costs rise, but LP tax optimization improves.
Why it matters
- Founders: Your cap table lists the master fund or a blocker, not individual feeders. Signing documents may reference multiple entities in the GP org chart.
- Investors: Choosing the wrong feeder creates tax friction. LP counsel reviews side letters and ERISA exposure before wiring.
Common mistake
Assuming each feeder is a separate fund with different portfolios. In a classic master-feeder, feeders share one investment pool—only tax wrappers differ.
Related ideas
See also blocker corporation, ERISA, fund formation, and LPA.
Related terms
- Blocker Corporation — A blocker corporation is an interposed C-corporation used in fund structures — often by tax-exempt LPs — to block unrelated business taxable income from flowing through from operating partnerships. It converts pass-through income into corporate dividends eligible for portfolio exemption rules.
- ERISA — ERISA (Employee Retirement Income Security Act) is the U.S. law governing private pension and benefit plans—affecting how pension LPs invest in VC funds and how ESOPs operate.
Common questions
Short answers for founders, LPs, and operators