1/ How VC economics work explained very simply 👇
2/ Management company is the key entity. It is owned by the General Partners.
Revenues are fees paid on funds (usually 2%, may go down after investment period).
Expenses are team comp, office, all ops, compliance and placement agent fees if those are used.
Revenues are fees paid on funds (usually 2%, may go down after investment period).
Expenses are team comp, office, all ops, compliance and placement agent fees if those are used.
3/ Each fund is a separate Limited Partnership. Investors are hence Limited Partners.
Each fund pay fees and carry ... as well as some expenses (legal feels, deal expenses, fund admin, audit fees)
Each fund pay fees and carry ... as well as some expenses (legal feels, deal expenses, fund admin, audit fees)
4/ Carried interest is held in a separate partnership vehicle - usually one for each fund, or a "compartment" - and carried interest is distributed to the people who helped invest that fund (General Partners, Partners, other team members).
Subject to 10 year vesting.
Subject to 10 year vesting.
5/ Simple :-)
6/ Most funds are 2% management fee and 20% carried interest. First time funds usually start at 2.5% to alleviate startup costs and decline over time. Total fee intensity is usually 15-20% over 10 years. Public investors tend to cap total fees at 15-18%
Top funds charge 3/30
Top funds charge 3/30
7/ I forgot GP commitment! - Partners invest collectively 1 to 30% alongside the LPs into the fund.
Usually 2% at a minimum.
Often GP's will use the management fee to fund this.
New structures such as @AngelList rolling funds reduce that hurdle for emerging investors 👍
Usually 2% at a minimum.
Often GP's will use the management fee to fund this.
New structures such as @AngelList rolling funds reduce that hurdle for emerging investors 👍
