Glossary - Zombie Fund
A zombie fund is a private equity or venture capital fund that has become inactive because it is unable to raise new capital or invest in new companies, and it typically has not achieved its investment goals. These funds often continue to exist to collect management fees and cover the costs of remaining portfolio companies, but they are not actively deploying capital or seeking new investments. Zombie funds can create challenges for investors looking to exit and for the fund managers trying to salvage value from the remaining investments.
Also known as
- Inactive fund
- Dead fund
Use cases examples
- Limited Partnership Agreement: The Limited Partnership Agreement includes provisions for scenarios where the fund becomes a zombie fund, outlining the steps for liquidation or restructuring to protect the limited partners' interests.
- Annual Report to Investors: In the Annual Report to Investors, the management may explain the status of the fund as a zombie fund, detailing the remaining assets, the strategy for value maximization, and any potential avenues for investors to recoup their investments.
Considerations for investors
- Before investing, assess the fund's performance and management team to avoid committing capital to a fund at risk of becoming a zombie.
- Monitor the fund's activity, including new investments and fundraising efforts, to identify early signs of stagnation.
Considerations for founders
- Understand the exit provisions in your investment agreements to know your options if your investor turns into a zombie fund.
- Maintain communication with your investor and seek clarity on how their status as a zombie fund affects their commitment to your company.
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