What is meant by 'soft circle' in private equity?

• A. A term for investors who have committed capital
• B. A designation for investors who have shown initial interest but not yet committed
• C. A formal agreement to invest
• D. A method for tracking investment performance

Answer: (B)

In the context of private equity, the term 'soft circle' refers to a designation for investors who have expressed an initial interest in investing but have not yet made a formal commitment to do so. This status indicates that these investors are considering the opportunity and may potentially contribute capital, but their decisions are still pending.

Understanding this concept is crucial for private equity professionals as it helps gauge investor sentiment and identify which parties might eventually contribute to a fund, albeit with no binding obligation at that stage. This can influence a firm's fundraising strategy, communications, and timing in securing commitments. Investors in a soft circle may require more information or see how the fund develops before they finalize their decisions.