Management Fee
Definition
A management fee is the annual charge a venture fund's general partners collect from committed capital, typically 2 percent per year, to cover salaries, operating costs, and running the firm, separate from any profit they earn through carried interest.
How it comes up in fundraising
Founders rarely negotiate management fees directly since they are paid by the fund's LPs, not the company, but the fee shapes how a fund behaves, including how much pressure a GP feels to deploy capital and how long a fund's active investment period lasts.
Frequently asked questions
How is a management fee different from carried interest?
The management fee is a fixed annual charge on committed capital regardless of performance, while carried interest is a share of profits the GP only earns if the fund actually makes money for its LPs.
Does the management fee change over a fund's life?
Many funds charge the full rate during the active investment period, roughly the first five years, then step it down on a smaller base as the fund shifts to managing existing portfolio companies.
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