Jan 7 2007

What Are Standard General Partner Terms in Fund Agreements?

Question:  I’ve always been curious, what are standard GP terms for venture funds?  What carry percentages are there?  How much do GPs actually put into funds?

Our Take:  There is a range, but in terms of general economic terms:

–  Management Fees: 1-3% of capital commitment.  Smaller funds usually have a higher percentage.  The norm is usually 2-2.5%.  Note that after the first five years (when the period for making new investments normally ends), the percentage usually decreases. 

–  Carry: 15-35%.  Mid-case is 20%.  Some newer funds have lower percentages and some of the large top-tier funds have 30% and higher.  Some funds have a scale whereby if they meet certain profit hurdles, their percentage increases. 

–  GP commitment: 1-5%.  The trend over time is for the percentage to increase.  This is both because investors want the GPs to have more skin in the game, but also because it’s a tax efficient way for GPs to receive compensation assuming they are successful.