VC & PE Glossary
What Is Offshore Feeder?
Updated
Definition
An offshore feeder is a non-U.S. fund vehicle — often in the Cayman Islands or similar jurisdictions — that pools international or tax-sensitive LPs into a main fund or parallel structure.
Useful for: Founders, Investors
Offshore feeder is a fund entity organized outside the United States that aggregates limited partner capital and invests into a master fund, parallel fund, or portfolio alongside U.S. domiciled vehicles.
How it works
A U.S. VC raises Fund IV LP (Delaware) plus Fund IV Offshore LP (Cayman). Non-U.S. investors and some U.S. tax-exempt institutions subscribe to the offshore feeder to mitigate ECI (effectively connected income) and certain filing burdens. Economics mirror the main fund through master-feeder or parallel agreements — same portfolio, pro-rata allocations, aligned fees and carry.
Blocker corporations sometimes sit between tax-exempt LPs and operating companies to block pass-through of taxable income. Fund counsel coordinates AML/KYC, side letters, and co-investment rights across feeders.
Founders encounter feeders indirectly when cap tables list Cayman entities as investors or when acquisition structures require tax planning for offshore holders.
Why it matters
- Founders: Investor identity on the cap table may be an offshore LP of a known fund — diligence still maps back to the GP relationship manager.
- Investors (LPs): Feeders are infrastructure for global allocation, not tax evasion. Proper structure avoids surprise U.S. tax on unrelated business taxable income for endowments and pensions subject to ERISA or similar rules.
Common mistake
Assuming offshore feeder investors are opaque or unregulated. Major institutions use standard Cayman feeders with full KYC; opacity is a process failure, not a structural feature.
Related ideas
See also blocker corporation, ERISA, parallel fund, and master-feeder structure.
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