Fund Mechanicsharvest-period

Harvest Period

Also known as Harvesting Period, Harvesting Stage, Realization Period, Post-Investment Period

Mikael Andersson
Mikael Andersson
VC Analyst · Updated

The harvest period is the back half of a venture fund's life, when the GP stops making new investments and focuses on growing existing portfolio companies and selling them. It typically runs from around year five through year ten, with most distributions concentrated in years seven to nine.

In depth

A venture fund splits its ten-year life into two halves. The investment period (years one through five) is when the GP deploys capital into new companies and calls capital from LPs to fund those checks. The harvest period (roughly years five through ten) is when the GP stops writing first checks and works on getting paid back.

Three things shift at the boundary. Management fees typically step down, either to a lower percentage or to a smaller base of net invested capital. New investment activity ceases except for follow-ons into existing portfolio companies. And the fund starts producing distributions rather than calls, flipping LP cash flow from negative to positive.

The harvest period is not a passive phase. GPs spend it on board work, secondary sales, syndicating later rounds for existing positions, and timing exits. A good harvest is the difference between a 2x and a 4x fund, because the same underlying companies can produce very different outcomes depending on how skillfully the GP times and structures liquidity.

Why it matters

Harvest period mechanics determine whether a fund's paper TVPI converts to realized DPI. LPs watching a year-six fund at 2.5x TVPI care most about the GP's exit discipline. A GP that holds for the perfect price often watches winners revert to the mean. A GP that exits too early caps the fund's upside.

For LPs underwriting a new fund, the harvest period also shapes when they recycle cash into the next vintage. Mature LPs ladder commitments so that distributions from year-eight funds fund capital calls in their newest commitments.

Worked example

A 2019-vintage fund with $200M in commitments:

PeriodYearsActivityLP cash flow
Investment1-5New checks into 25 companies, fees at 2.0%-$160M
Harvest (early)6-7First exits, follow-ons in winners+$80M
Harvest (late)8-10Series D+ exits, secondary sales, IPOs+$340M
Total distributions = $420M
Paid-in capital     = $200M
DPI at year 10      = $420M / $200M = 2.1x

The harvest period produced $420M in distributions from $200M of paid-in capital. Year-eight to year-ten exits drove the bulk of returns, which is typical for venture: top-quartile funds concentrate realizations in the back half of harvest as winning companies reach the scale that supports an IPO or strategic acquisition.

Frequently asked

When does the harvest period start?

Most LPAs end the investment period at year five and the harvest period runs from there until the fund's stated term, usually year ten. Two one-year extensions at the GP's discretion are standard, pushing the effective harvest period out to year twelve in many funds.

Can a fund make new investments during the harvest period?

Generally only follow-on investments in existing portfolio companies. New platform investments stop at the end of the investment period because management fees step down and the fund's commitment period has expired.

What happens to management fees during the harvest period?

Fees usually drop from 2.0 percent of committed capital to 2.0 percent of net invested capital, or step down by 25 basis points each year. The lower fee base reflects that the GP is managing existing positions rather than sourcing new deals.

How does the harvest period interact with DPI?

DPI accelerates during harvest because exits convert RVPI into cash distributions. A fund that enters harvest at 0.2x DPI typically finishes between 1.5x and 3x DPI for top-quartile funds, with the bulk of distributions landing in years seven to nine.

Sources & further reading