VC & PE Glossary
What Is Master-Feeder?
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.
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