Tue, 30 August 2022
Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.
In setting up a VC fund, you’ll need to determine compensation for the partners and team members.
Most funds use the 2% management fee with a 20% carry model.
This means 2% of the funds raised will be used for salaries, along with 20% of any of the profits.
In a $100M fund, $20M would be available to pay salaries each year over the ten-year life of the fund or $2M.
Some funds pay the management fee more heavily in the first five years and less in the later years of the fund.
For funds under $25M, a 2.5% fee is more common.
The carry is the profit from the investments.
In most funds, the limited partners must receive their committed capital back before carry is paid out to the general partners.
New funds sometimes offer a lower management fee to those limited partners who help raise additional funds.
Some funds forego the management fee and take their total compensation in carry.
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