Fund Structure
Management Fee
The annual fee (typically 2% of committed capital) charged by a VC fund to cover operating expenses including salaries, rent, and travel.
Management fees are the operational revenue of a VC firm — the 'M' in the 2-and-20 model. Standard is 2% of committed capital per year, charged throughout the fund's life. For a $200M fund, that's $4M/year — $40M over 10 years. This sounds significant, but covers all fund operations: partner and staff salaries, rent, travel, legal, accounting, and other overhead for a team managing dozens of portfolio companies. Management fees often step down after the 'investment period' (typically years 1-5) — for example, dropping from 2% to 1.5% in years 6-10 when most of the investment activity has ended. Management fees are an LP cost, not a profit center — the real GP compensation comes from carried interest on successful exits.