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*most VCs dreadfully underperform. Even the top performers don't do so well once you factor in fees and everything else.

ISL 6y ago
Do VCs charge themselves fees?
- adambyrtek 6y ago
  VCs invest money raised from LPs (limited partners) and usually charge an annual fee on assets under management and also get a share of any profits.
- dpoochieni 6y ago
  If its anything like private equity (bigger company VC's), they charge their limited partners an annual fee. Around 1 or 2%
- rexreed 6y ago
  You should read this: https://hbr.org/2013/05/six-myths-about-venture-capitalists https://hbr.org/2013/05/six-myths-about-venture-capitalists "the standard VC fund charges an annual fee of 2% on committed capital over the life of the fund—usually 10 years—plus a percentage of the profits when firms successfully exit, usually by being acquired or going public. So a firm that raised a $1 billion fund and charged a 2% fee would receive a fixed fee stream of $20 million a year to cover expenses and compensation. VC firms raise new funds about every three or four years, so let’s say that three years into the first fund, the firm raised a second $1 billion fund. That would generate an additional $20 million in fees, for a total of $40 million annually. These cumulative and guaranteed management fees insulate VC partners from poor returns because much of their compensation comes from fees. Many partners take home compensation in the seven figures regardless of the fund’s investment performance. Most entrepreneurs have no such safety net. " Yup, those high-flying VCs? making money the same way money managers too - taking a cut of assets under management (AUM). Nothing to do with their investment prowess -- just gather lots of money, take a cut of that gathering, and whether or not the investors make money won't impact your paycheck. yes there's a nice bonus if you make it, but that's not necessary. That's how the 80% of VCs that don't generate substantial returns are making a living.

ISL 6y ago

Do VCs charge themselves fees?

adambyrtek 6y ago
VCs invest money raised from LPs (limited partners) and usually charge an annual fee on assets under management and also get a share of any profits.
dpoochieni 6y ago
If its anything like private equity (bigger company VC's), they charge their limited partners an annual fee. Around 1 or 2%
rexreed 6y ago
You should read this: https://hbr.org/2013/05/six-myths-about-venture-capitalists https://hbr.org/2013/05/six-myths-about-venture-capitalists "the standard VC fund charges an annual fee of 2% on committed capital over the life of the fund—usually 10 years—plus a percentage of the profits when firms successfully exit, usually by being acquired or going public. So a firm that raised a $1 billion fund and charged a 2% fee would receive a fixed fee stream of $20 million a year to cover expenses and compensation. VC firms raise new funds about every three or four years, so let’s say that three years into the first fund, the firm raised a second $1 billion fund. That would generate an additional $20 million in fees, for a total of $40 million annually. These cumulative and guaranteed management fees insulate VC partners from poor returns because much of their compensation comes from fees. Many partners take home compensation in the seven figures regardless of the fund’s investment performance. Most entrepreneurs have no such safety net. " Yup, those high-flying VCs? making money the same way money managers too - taking a cut of assets under management (AUM). Nothing to do with their investment prowess -- just gather lots of money, take a cut of that gathering, and whether or not the investors make money won't impact your paycheck. yes there's a nice bonus if you make it, but that's not necessary. That's how the 80% of VCs that don't generate substantial returns are making a living.