1/ I feel like breaking some rules today. Let's get transparent and have an open discussion about management fees in VC to help other emerging managers. The standard fee structure is 2% the size of the fund every year for 10 years or the life of the fund.

#vc #startups #funding

2/ This means if you are an emerging manager raising a micro/nano fund of let's say $10M, then you get $200K a year for operations. That $200K pays for legal, fund admin, accounting, expenses, and your salary. basically that 2% doesn't go very far

#vc #startups #funding
3/ This is in contrast to a larger fund, let's say $100M fund where 2% is $2M a year. This is why some LPs (those who invest in funds) are looking for smaller management fee which is unreasonable for micro funds which many diverse managers are raising

#vc #startups #funding
4/ Now at RareBreed Ventures we structured our fees to be 2.5% for the first 5 years and 1.5% for the last 5 years. This comes out to the standard 2% but front-loaded in earlier years

#vc #startups #funding
5/ This means when we hit our target of $10M (if you want to be an LP our min investment is 10K and you can go to https://t.co/dm6ywrNFnU). We'll have 250K for the first 5 years giving a little more cushion for operations and allowing me to bring on a hire

#vc #startups #funding
6/ That seemed like the best option for me because it still keeps the fees at 2% overall and we are essentially making the bet that in 3 years or so we'll raise fund 2 which will be larger (our goal is $50M)

#vc #startups #funding
7/ The important thing to note here is the raising of new funds every 3 or so years. in our case let's say we close a $50M fund with the standard 2% fees in year 4 of our fund 1. Then we will be getting fees from both fund 1 & fund 2 which make life easier

#vc #startups #funding
8/ To this point @Nivo0o0 from @ShrugCap gave me some of the best advice ever and I wish I had gotten it earlier in my fundraising journey

#vc #startups #funding
9/ Basically @Nivo0o0 suggested front-loading the management to 4% but then only taking fees for the first 4 year. This leads to lower fees over the full 10 years while giving you more money to work with when getting started

#vc #startups #funding
10/ His point with this is if you do what you say you will, you'll raise fund 2, and then you won't need the fees from fund 1 anymore. I think this is really smart and appealing to LPs because its less fees overall and more money for investments

#vc #startups #funding
11/ I'd love to hear other thoughts on this topic so we can educate other emerging managers.@Samirkaji @DSox @davidrgoldberg @ceonyc @chudson @johnhenrystyle @MyDailyPosts @Jai__Malik @jasonlk @roybahat @PDXStephenG @minal_hasan @dunkhippo33 @yoheinakajima

#vc #startups #funding

More from Startups

1/ Tuesday was my last day as CEO of @CircleUp. I’ve been CEO since starting the co. in 2011 with my co-founder @roryeakin.

This is a thread about what happened, why and my emotions about it. For more detail:

https://t.co/vYImcm1bTM

Much of this I have never talked about.

2/ My goals: I hope it helps founders feel less lonely than I did. Little public content about the challenges of transitioning exists, but I longed for it. I’m not here to provide a playbook- just to share my experience. Hope it might build greater empathy.

Here goes….

3/ Why: When I tell people that I’m transitioning to an Exec Chairman role their first question is always: “why?” Short answer: co. pivot + fertility issues + health issues + a false sense that grit was always the answer = burnout. Long answer: is longer so hang in there with me

4/ Over a 12-18 month period that ended in late 2017 I ran my tank far beyond empty for far too long. You know that sound your car makes when it’s sputtering for more gas? It was like that. Worst year of my life. Since then it has felt like bone on bone.

5/ Here is what happened:

Professionally: pivoting a Series C company was a living hell in and of itself, as I’ve talked about before.

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