A cardiologist I have known for years called me with a fund document open on his screen and one question: Is this a good one? He had read all of it. He still could not tell me what he would owe, when he would owe it, or when any of it might come back. He is superb at what he does. Nobody had taught him this, because nobody teaches us this.
I have watched a couple hundred physicians make their first private investment. The mistakes are consistent, and almost none of them involve picking the wrong manager. They involve not understanding what you signed.
A venture capital (VC) fund is a partnership. The manager is the general partner (GP) and decides what gets bought. You are a limited partner (LP), which means you supply money, you get no vote, and your exposure stops at what you agreed to put in. You are buying one team’s judgment for a decade and you cannot fire them halfway through.
This is nothing like owning a stock. You cannot sell on a Tuesday because you changed your mind, you do not control when your money leaves your account, and the number on your statement is not a price. It is the manager’s estimate of what the companies are worth, usually anchored to whatever the last investor paid.
Real physician voices, twice a week
Free, and one click to unsubscribe.
The first gate is the accredited investor test, which is what lets you buy securities never registered with regulators. Under U.S. Securities and Exchange Commission (SEC) rules you qualify with net worth over $1 million excluding your home, or income over $200,000 alone or $300,000 with a spouse in each of the last two years. Those figures date to 1982 and 1988 and have never been adjusted for inflation. The SEC’s own 2023 staff report calculated that indexing them would put the net worth bar near $3 million. Most attendings clear the current test without trying, which says more about inflation than readiness.
In a Rule 506(b) offering, which by SEC filing data is how roughly nine of ten venture funds are sold, nobody is required to verify any of it. The issuer needs only a reasonable belief that you qualify. You check a box on a questionnaire.
On mechanics: You do not wire the money, you promise it. Commit $100,000 and you sign a subscription agreement, the contract that binds you, then wait for capital calls, which are demands for a slice of that commitment as deals appear.
The model partnership agreement published by the Institutional Limited Partners Association, written for buyout funds because venture has no model form of its own, gives an LP 10 business days of notice on a call. Miss one and the standard remedy is that you forfeit up to 100 percent of your interest in the fund without payment or other consideration, with the other partners picking it up. Not a penalty. The whole position.
I have never seen it enforced that far. I have been through a startup wind-down where the timing of dissolution determined whether investors could claim their losses at all. The paragraphs nobody reads are the ones that decide outcomes. Every physician I have watched get caught on a capital call had sized the commitment against a good quarter.
Now run $100,000 through the fee structure. Carta’s data on roughly 2,000 U.S. funds puts the median management fee, charged annually on what you committed whether or not it has been invested yet, at 2 percent during the investment period, stepping down to 1.9 and then 1.8 percent after that. Over a ten-year life that is somewhere near $15,000 to $19,000 of your $100,000, gone before a company is sold.
So roughly $83,000 of your commitment actually reaches companies. If that grows into $250,000, carried interest, which is the manager’s cut of the profits, takes 20 percent of the $150,000 above your original $100,000. That is $30,000 to the GP and about $220,000 to you, after both fees and carry. Carta finds the middle 50 percent of new venture funds charge exactly that 20 percent, and most set no hurdle rate, so carry starts on the first dollar of gain rather than after a minimum return. Close to 80 percent of private equity funds require an 8 percent hurdle first. Venture rarely does.
Timing breaks more physicians than fees do. The standard term is ten years plus two one-year extensions. Early on you are paying fees against companies valued at their last financing price, so on paper you look underwater. That shape is the J-curve, and the textbook trough is three to five years.
The textbook is optimistic right now. Carta found that more than 60 percent of 2019-vintage funds, meaning funds that started investing that year, had distributed nothing at all five years in. Distributions are cash that actually lands back in your account, not marks on a statement. PitchBook put the average 2021 fund at roughly five cents on the dollar at its five-year mark, the weakest such figure this century. Cambridge Associates found that since the start of 2022, venture managers have called 1.6 times more capital than they distributed, after a decade of the reverse.
None of that makes fund investing a bad idea. It makes it a ten-to-fifteen-year commitment funded with money you will not need. The spread between managers is also enormous. Carta’s 2019 vintage shows a top decile marked near 3.0x, three dollars of value for every dollar in, against a 25th percentile of 1.02x, which is break-even six years on. Manager selection is close to the whole return.
That dispersion is also why minimums run high. A fund larger than $12 million relying on the common exemption is capped at 100 investors, so a $50 million fund divided by 100 slots averages $500,000 a commitment before the manager reserves room for anchors. Spreading across several managers and vintage years, the only real defense against that spread, gets expensive fast.
The questions I would ask before signing anything. What have you returned in cash, not on paper, and from which fund? What is the strategy, stated tightly enough that I can tell you what you will not invest in? How much of your own money is in this one? Show me a deal you passed on and why. Who are three LPs from your last fund I can call without you introducing us? And have your own attorney and tax advisor read the actual documents. None of the above is investment advice and none of it substitutes for your own advisors.
That cardiologist on the phone knew more going in than I did when I wrote my first checks. The gap closes fast once you know which questions matter, and it is worth closing, because physician capital is not passive capital. The money we put behind health care companies decides which of them get to keep going, and nobody in the chain is better equipped than we are to judge which ones should.
Harsha Moole is an internal medicine-trained physician-scientist with more than 100 peer-reviewed publications, including work featured in the New England Journal of Medicine. After years of clinical practice and gastroenterology outcomes research, he made an unconventional transition from the bedside to the boardroom by founding PhysicianEstate, a health care-focused venture capital firm.
Over the past seven years, Dr. Moole has made 22 early-stage health care investments across digital health, medical devices, biotech, and therapeutics. He has also built a network of more than 200 physicians from institutions such as Johns Hopkins and Stanford who help source opportunities and provide clinical diligence before capital is deployed. His core thesis is that physician-scientists with firsthand clinical experience are uniquely positioned to identify health care investments that generalist investors often miss.
His research background is reflected in his publication record on Google Scholar, and he shares professional updates on LinkedIn.
