Committed capital
What is it?
Committed capital refers to the money that investors have agreed to put into a project or company. Even if it hasn’t been transferred yet, it’s set aside and ready to be used according to the terms of the investment agreement.
This concept is especially relevant in private investment funds, like venture capital or private equity, where investors commit money over the long term. Fund managers call the committed capital in stages, as investment opportunities come up or funds are needed for specific projects.
Key aspects to consider
Committed capital allows fund managers to plan and execute investment strategies with certainty about available resources. Some important characteristics of committed capital include:
- Drawdown over time: Investors don’t pay the full amount upfront. Instead, the money is requested in capital calls as the fund or project needs it.
- Contractual commitment: Investors are legally obligated to provide the agreed funds under the terms of the agreement.
- Effect on returns: Committed capital doesn’t start generating returns until it’s actually invested, but it allows managers to act quickly when opportunities come up.
In the world of business or real estate projects, committed capital gives project developers financial certainty — making sure they have what they need to cover operational costs, development, or expansion.