A lot of older times in VC talk a lot about the incentives of “fees” in venture
Why? Let’s take a look at the Old Days. Like, until 2019.
1/ Until 2019 or so, a “3x fund” — that tripled the LPs’ money was top tier. “2x” was not great, but good enough for another check.
Why? Let’s take a look at the Old Days. Like, until 2019.
1/ Until 2019 or so, a “3x fund” — that tripled the LPs’ money was top tier. “2x” was not great, but good enough for another check.
2/ Today, the bar has gone way up. LPs want 4x net funds or better now, and may have multiple funds per cohort that are 5x-10x or more.
3/ Now, depending on the maths and fund structure, in a “2x net” fund, the partners might still make the majority of their money off fees — not “carry” from investing
At “3x net”, the math would favor carry, but only many years down the road
At “3x net”, the math would favor carry, but only many years down the road
4/. Now as you cross into 5x fund, the “carry” or profits from the investment simply dwarf the fees, at least on paper
No one cares anymore what costs of deploying the capital are at that rate of return
VCs can often even take 40% of profits if they’ve done this multiple times
No one cares anymore what costs of deploying the capital are at that rate of return
VCs can often even take 40% of profits if they’ve done this multiple times
5/ So net net, times are good for LPs and venture
No one cares anymore if partners are making tons in “fees” for managing money if they can repeatedly deliver 4x+ net funds or better
So the discussion about VCs being paid too much for mediocre returns has sort of faded
For now
No one cares anymore if partners are making tons in “fees” for managing money if they can repeatedly deliver 4x+ net funds or better
So the discussion about VCs being paid too much for mediocre returns has sort of faded
For now
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