Venture Capital management fees: how can investors use all this information?

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 thought was “standard” turned out to be investor-friendly.

Hopefully the series can help you evaluate fund managers. Naming no names, except where people make public claims, everything in this series and below are real examples of management fee base claims and shenanigans.


Is a fund manager adequately incentivized in a step-down approach, or being greedy on a committed capital approach? (Yes, and yes, in our opinion.)

Is the fund manager whose term sheet says “The Manager will receive a management fee calculated at an annual rate equal to two percent (2%) of the committed capital of the Fund less the cost basis of all the Fund’s securities previously distributed in kind to the Partners, and the minimum annual management fee will be $150,000 [compared to a $10-25M target fund?]” doing something manager friendly (Yes on the committed capital), weirdly non-standard (Yes on netting just cost of distributions in kind. What about everything else?), and potentially egregious (Yes – $150k / year to administer a 1-2 company portfolio in year 9? Come on.)?

Is a 2.5% fee OK because the fund is small? (Maybe. But does $15M count as small?) Would it be OK on a committed capital basis? (Not in our opinion.)

Is the AngelList Rolling Fund approach (2% of committed capital for 10 years, paid out in the first 4 years) reasonable (No.), comparable to a “traditional VC” using the step-down approach (No – more expensive than the (slight) majority of VC funds), or sensible (No. What happens in years 5-10‽)?

Is the fund manager claiming their 12.5% total fee load is a 40%-off bargain – here, for example – making a legitimate marketing point? If you believe our earlier evidence, you might conclude “meh, not really”.


So as arcane as the “management fee base” topic is, we think a well-informed LP should be getting very precise answers from a potential fund manager about how they calculate the management fee – and reading as much into that as they need to.