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> Third, and this is rarer, some funds have made loans or real estate investments using their management fee income as a way to boost the salary returns of the
by pbiggar 7y ago
> Third, and this is rarer, some funds have made loans or real estate investments using their management fee income as a way to boost the salary returns of the general partners.
They what?!?
- gumby 7y agoThe management fee is just cash for the GPs and they can do with it what they want. In theory it's to run their business until investments cash out but notice how they always force the company they are investing to pay legal fees (i.e. take it immediately out of the LP's new investment)? They just treat it as their income.
- dkersten 7y ago> notice how they always force the company they are investing to pay legal fees (i.e. take it immediately out of the LP's new investment) This always left a bad taste with me
- gumby 7y agoI had an investor who had breakfast with me twice a month. He always picked up the tab. Then the firm (with a billion+ fund) sent the company an invoice every quarter. I had lunch with him the other day (before lockdown) and he paid. I’m no longer at that company so I wonder who might be billed.
- sgrove 7y agoYou're saying the firm retroactively invoiced the company for the lunch the investor had (and ostensibly paid for) with you?
- gumby 7y agoYep, I assume he used his company card. What really got me is that breakfast at hobee's was something like $15 for the two of us. Crazy!
- dkersten 7y agoWow, that's kinda scummy.
- estsauver 7y agoThe reason for this, that makes sense to me, is that there's typically one lead investor negotiating terms and often many other following investors. If the lead investor was the only one who was paying, then only the lead would take the dilution. If this is spread out among all investors, it's conceptually more fair since the lead is negotiating for all of the investors effectively. At that point, if you have a 50k legal bill, you can either say it's a 1M$ round where each investor has to chip in their share, or you say it's a 1.05M$ round and the company has to pay.
- gumby 7y agoOh come on they can manage their own side of the fees. It’s merely petty greed. Also a $25MM round likely costs about $40K (combined) to do. So does a $5MM round. Shameful. I always cap the total fees at $30K which pisses off the lawyers but the VCs shrug.
- deleted 7y ago[deleted]
- qqqwerty 7y agoThis also struck me as odd. The only reason I can think of doing something like this is that maybe it is pre-tax? So instead of paying a salary which triggers payroll and income taxes, they defer the salaries and dump the money into investments?