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Fee harvesting is one of the more annoying things about big funds. Most funds take their full 2% (or whatever) a year for the entire committed fund size, hence
by robk 16y ago
Fee harvesting is one of the more annoying things about big funds.
Most funds take their full 2% (or whatever) a year for the entire committed fund size, hence the motivation to raise larger and larger funds. At that point, the fee is rather juicy especially when they're collecting fees from 2 or more active funds (assuming they raise a new fund every 3 years or so). Even if they don't get into carry, the partners can live pretty well, though their returns might not justify it.
There's a need for more lean VCs to complement the lean startups that are emerging now. Fee-driven funds that are too large to maneuver wind up making poor decisions.
- helveticaman 16y agoSome hedge funds have reduced the maintenance fee and increased the carry because they could count on continuing success.
- pge 16y agoI couldn't agree more. I have seen too many fund managers succumb to the temptation of ever larger funds (and salaries), leading to inadvertent but fundamental changes in investing practices (more mgt fee/partner => more dollars to deploy per partner => bigger investments in each portfolio company => not venture capital anymore), though I hope those days are passing as the industry contracts. When salaries get big, the incentive to take investment risk declines (the upside value of carried interest is less than the downside risk of losing the LP base).