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"And how much of that money is eaten up by the "services" that a16z provides..." As a rule of thumbs, VCs take 2% of the fund's totally funding every year as "
by bing_dai 10y ago
"And how much of that money is eaten up by the "services" that a16z provides..."
As a rule of thumbs, VCs take 2% of the fund's totally funding every year as "management fee", to pay for salaries, office rentals, marketing etc.
Therefore a16z's management fee from this specific fund is about $30M a year ($1.5B * 0.02).
However, please note that this is just the management fee of ONE fund. A VC firm often raises additional funds before a previous one ends its cycle (that's why you see fund names such as a16z fund I, a16z fund II, etc). a16z therefore has additional annual management fee from the previous, unfinished fund as well. I would not be surprised if a16z has $50M management fee per year across its multiple funds.
Source: I used to work for a VC.
- w1ntermute 10y ago> As a rule of thumbs, VCs take 2% of the fund's totally funding every year as "management fee", to pay for salaries, office rentals, marketing etc. a16z spends much more than most VC firms on providing all kinds of services (such as recruiting) to their portfolio companies, and hires a ton of people for that purpose. It's not clear whether those expenses come out of the management fee or not.
- bing_dai 10y agoThat's interesting to know. My guess is that, other than the management fee, there are two potential sources of money that can pay for those additional services: 1. A portion of the profit that a16z made from previous exits. 2. This is a less likely option - asking portfolio companies to pay for those services. I know VCs that bill their portfolio companies for certain professional services.
- foobarqux 10y agoWhich services? Charging for services is common in private equity, but I was not aware that VCs also did so. Are these top-tier VC funds?
- justinv 10y agoDesign, legal, engineering, etc. A16Z has a lot of in house partners that focus on things other than just investments. Edit: Just want to say that the top funds do not charge for these services. Some funds do - they invest and then you pay them back a bunch of money for services.
- bing_dai 10y agoBusiness development, market assessmebt, technical development etc. None of these firms that charge their portfolio companies are the typical valley top-tier funds, but I do not think it means that charging portfolio companies for professional services is a bad thing.
- gumby 10y agoThis is part of the model of Playground.global, Andy Rubin's hardware-oriented VC firm, although you pay with extra equity at the common price.
- ProfChronos 10y agoThey're clearly not the only ones to do that. For instance Social Capital provides all portfolio startups with a comprehensive data analytics platform and a team of data scientists. For recruiting, almost all large VC funds have one or more dedicated talent sourcing people - Index, Accel, etc. Bottom line: I don't see any specific reason to justify a 3% management fee, except the cofounders' unique insights and contacts in the Valley and their personal relations with LPs