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    Management Fee

    Also called: Mgmt fee

    TL;DR

    An annual fee LPs pay GPs to operate the fund, typically 2% of committed capital during the investment period and lower after.

    Management fees fund the operating costs of a venture firm: salaries, rent, travel, due diligence. The standard structure is 2% per year of committed capital during the 'investment period' (typically 5 years), stepping down after to ~1.5% on invested capital. Over a fund's life, total fees often consume 12 to 18% of committed capital.

    Management fees are paid regardless of fund performance, which means GPs get paid even if returns are zero. Carry exists to align GPs with performance; management fees exist to keep the lights on.

    Worked example

    A $300M fund charges 2.0% on committed capital years 1 to 5 ($6M/yr = $30M total), then 1.5% on net invested capital years 6 to 10. Total fees over 10-year fund life: roughly $50M, or 17% of committed, reducing net-to-LP performance by ~1× MOIC vs gross.

    Common pitfalls

    • •Confusing management fees with carry, they're different economic instruments.
    • •Underestimating cumulative fee drag on net returns.
    • •Comparing 2% on a $50M fund to 2% on a $1B fund without thinking about scale economies.

    When this shows up in a pitch deck

    Fund-economics concept.

    Related terms

    Carry (Carried Interest)

    The share of fund profits paid to the GPs above a defined hurdle, typically 20% in venture funds, 'carry' is the GP's economic upside.

    Hurdle Rate

    The minimum annualized return GPs must deliver before they can begin earning carried interest.

    GP Commit

    The capital General Partners personally commit to their own fund, signaling alignment with the LPs they're raising from.

    Limited Partner

    A passive investor in a venture fund, providing capital but not making investment decisions, and limited in liability to their commitment amount.

    General Partner

    A managing partner of a venture fund, responsible for sourcing, diligence, investment decisions, and value-add to portfolio companies.

    Use Management Fee in your next pitch deck

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