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They get a management fee based on the total size of the fund, not just those that have been invested. It's typically between 2 and 3% of the fund per year and
by skmurphy 18y ago
They get a management fee based on the total size of the fund, not just those that have been invested. It's typically between 2 and 3% of the fund per year and in addition to 20% of the profits made, if any, from investments.
- staunch 18y agoThat's the part I was unclear on. So if they take a billion dollar fund they're earning $20 million/year even if they've only invested $50 million of it so far?
- skmurphy 18y agoYes, and for a top tier firm it's closer to $30 million. It's a perverse incentive for increasing the size of the fund, which in turn increases the minimum investment: number of deals is a function of partner bandwidth, deal size is fund size divided by number of deals (you have to allow for follow on investments so it's the total amount invested over all rounds).