Brian Nichols is the co-founder of Angel Squad, a community where you’ll learn how to angel invest and get a chance to invest as little as $1k into Hustle Fund's top performing early-stage startups.

The Big Secret About VC Bank Accounts

Want to know something wild? When a VC tells you they just raised a $50 million fund, they probably have less money in their bank account than you do.

I'm serious.

It sounds crazy, right? How can a venture firm with hundreds of millions under management have almost nothing liquid?

The answer: capital calls.

This is one of those things that everyone in VC knows but nobody really explains to founders or new investors. It's just assumed knowledge. But it affects everything from why your VC takes forever to wire money to how funds measure their performance.

How Capital Calls Actually Work

When someone commits to invest in a VC fund, they're not writing a check for their full commitment on day one. Instead, they're promising to send money when the fund manager asks for it.

Say you commit $500k to a fund. You might only wire $50k initially. Then over the next few years, the fund manager will do periodic capital calls asking you to send portions of your remaining commitment. Maybe $83k every six months. Or maybe they call down capital deal by deal as they find companies to invest in.

Think of it like a subscription you paid for upfront, except the provider only charges you as they actually deliver the service.

Why does this matter? Because most limited partners (LPs) don't actually have all their committed capital sitting around in cash. Their money is tied up in other investments, real estate, future bonuses, or even commitments from their own investors.

For larger institutional LPs, it gets even more complex. Their money might be committed elsewhere, and they'll shuffle assets around over the three-year capital call period to meet each call.

Two Common Capital Call Models

VCs typically use one of two approaches:

Model 1: Schedule-Based Calls If you committed $100k, they’ll ask for roughly $16-17k each time. This lets our LPs plan ahead. They know approximately when money needs to be available.

Most funds that deploy frequently use this model. When you're writing dozens of checks per year, doing a capital call for every single deal would drive your LPs insane. Can you imagine getting a request to wire money twice a week? Nobody wants that.

Model 2: Deal-by-Deal Calls Some VCs, especially those who invest less frequently or write bigger checks, will call capital only when they have a specific deal. This is theoretically the "ideal" approach, but it's only practical if you're not doing a ton of deals.

Why VCs Sometimes Take Out Loans (Yes, Really)

Here's something that blows people's minds: VCs take out loans.

We've gone from "VCs have $50 million" to "VCs actually have $0" to "VCs owe money to banks."

But it makes sense when you think about it. Sometimes deal flow doesn't match your capital call schedule. You might go two weeks without seeing anything interesting, then boom – eight incredible companies show up at once.

You don't have time to do a capital call. These founders need term sheets now. So you take out a short-term loan, deploy into the companies, and repay it with the next scheduled capital call.

This happens more than you'd think, especially at high-velocity funds.

What This Means for Founders

If you're raising from VCs, understanding capital calls matters.

First, it explains why there's sometimes a delay between a verbal commitment and actually receiving wires. The VC might need to do a capital call first. This can take days or weeks depending on their LP base.

Ask your potential investors:

• Have you done your first close?
• When's your next capital call scheduled?
• How much will you have available after that call?

These aren't rude questions. They're practical ones. If a fund exists on paper but hasn't done a capital call, they literally cannot invest in you yet.

Second, it affects how VCs prioritize deals. If they've called capital and it's sitting in their account, they're more motivated to deploy quickly (because of the IRR hit from idle cash). If they need to do a capital call to invest in you, there might be more friction.

None of this means the investment won't happen. But it helps you understand the mechanics behind the scenes.

The Emerging Manager Playbook

If you're thinking about raising your own fund, here's what matters on capital calls:

Start with smaller initial calls (10-20%) to give yourself flexibility. Don't call too much too early, or you'll have idle cash hurting your IRR.

Be realistic about deployment pace. If you're planning to invest in 50 companies over three years, schedule-based calls make sense. If you're doing 8-10 deals, maybe deal-by-deal works.

Communicate clearly with your LPs about timing. Most LPs are sophisticated and understand the mechanics. They just want to know when to expect calls and roughly how much.

Consider your LP base's liquidity. If your investors are mostly individuals funding through bonuses, twice-yearly calls make sense. If they're institutions with capital already allocated, you might have more flexibility.

Why This Whole System Exists

Understanding capital calls is one of those insider knowledge pieces that helps you navigate fundraising more effectively. You stop taking delays personally. You ask better questions. You understand the real constraints your investors are working within.

And if you're building toward becoming an LP yourself? Now you know what you're signing up for when you commit capital to a fund. It's not a one-time wire and forget it. It's a multi-year relationship with scheduled obligations.

Whether you're a founder raising capital or an operator thinking about becoming an LP, Angel Squad provides the education and community to navigate these complex dynamics. Because the more you understand how venture capital actually works, the better decisions you make on both sides of the table.