Hard Cap

Definition

A hard cap is a binding limit on total fund commitments. It is usually justified by capacity constraints: the opportunity set, deal size, liquidity, and the team’s ability to execute without diluting returns. A credible hard cap protects LPs from style drift and forced deployment. Allocator Context Allocators like hard caps when they reflect real capacity discipline. They become skeptical when hard caps are treated as marketing or repeatedly increased without a strong, defensible explanation. For some LPs, hard cap also affects access planning—if they want a seat, they must prioritize approvals. Decision Authority Hard cap can accelerate IC urgency and affect ticket sizing discussions (how much can an allocator realistically get). It also intersects with concentration limits: if the fund is small, large LP checks may be constrained by diversification requirements. Why It Matters for Fundraising Hard caps build trust when they are real. The manager’s job is to explain capacity logic clearly: why this size, what breaks above it, and how the manager protects discipline under demand pressure. Key Takeaways Signals capacity discipline and risk control Repeatedly moving caps reduces credibility Influences LP urgency and allocation access Best hard caps are grounded in strategy mechanics