What do VC funds actually charge in management fees, and who cares? The hypothesis: The VentureSouth view: Venture capital funds and other similar funds that invest in early-stage companies (like our VentureSouth sidecar funds) charge a management fee that is...
To wrap up this series in a few bullet points.VentureSouth makes mistakes. We thought our step-down approach when defining the management fee for our sidecar funds was universal market practice; but it is not.It turns out that some VCs are greedy (who would have...
How do I use this information?New people invest in venture capital and angel funds all the time, and it’s hard to know what’s standard vs. reasonable vs. unusual vs. egregious if you are a new investor. Heck, we began this article in the first place because what we...
So then how have you dealt with the issues with the step-down approach you covered?Another fair question. To take each of them in turn:1. Protracting the deployment period. The VentureSouth sidecar funds are all set up to “trigger”...
What would VentureSouth do?A fair follow-up question on these posts on venture capital fund management fees is: so what does VentureSouth do?You hopefully will not be surprised to learn that we use the step-down approach on our sidecar funds: a percentage of committed...
The step-down approach is, in our opinion, the most appropriate management fee base. It provides appropriate resources to pay for deploying the capital well, based on the amount that has to be deployed at the beginning.The resources reduce once investments are...
How big a difference does the “management fee base” make?Obviously the best analysis of this question would look at results: do funds with a step-down fee base approach outperform other management fee bases, on a net (DPI) cash basis? Maybe great managers can provide...
Perhaps there are also more nuances to add here? Maybe:It varies by time. The flat percentage of committed capital approach might be an early or legacy structure? Seems possible given the somewhat dated academic literature showing the flat 2% model and the way this is...
Who do we think is right? After considering this new evidence, I’m willing to concede that VentureSouth’s view was wrong and the step-down approach is very far from universal.The most recent plausible survey that covers these issues that I’ve found is the “Different”...
The evidenceBefore I dived back into research, I thought the evidence would overwhelmingly support the “VentureSouth view.” My evidence included:Advice from our counsel when we were forming the first VentureSouth sidecar fund in 2014 that the “step down approach” was...