🤔Should Syndicate Leads Take Management Fees?

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🤔Should Syndicate Leads Take Management Fees?

I am very excited to finally write on this topic given the diverse thinking on SPV management fees. This is actually the first topic we've written about where Zach and I (Alex) strongly disagree. 

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Before we get into here, let’s first explain how traditional venture capital management fees work.

Venture capital management fees are charges for the ongoing operation of the fund, typically calculated as a percentage of the committed capital in the fund. These fees are commonly set between 1% to 2.5% per year for 10 years (and tend to be frontloaded), and are used to compensate the fund managers for their services and to cover the expenses of the fund. Almost all funds (if not all) charge management fees and it’s generally accepted without any pushback.

Management fees in Special Purpose Vehicles (SPVs) are similarly charges for the ongoing operation of the fund. These fees are typically expressed as a percentage of the SPV's total capital raised and can be collected annually or as a one-time, up-front fee. Similarly, these fees are for operating the fund. In the SPV ecosystem, management fees are far less common however with many syndicators often receiving significant pushback from LPs on management fees. However, for established large funds who run sidecar SPVs, management fees on SPVs are more accepted and standard. 

Management fees have been a hot topic over the years across many syndicate leads (and LPs) without any consensus. 

As mentioned, all traditional venture capital funds take management fees as it is important for them to use these fees to make key hires, manage legal expenses, and provide portfolio company support, among other initiatives. The role of a syndicate lead is similar but syndicate GPs often have much lower overhead and may have no other key team members, and minimal ongoing legal/other expenses. Some syndicate leads do charge management fees but many full time syndicators do not.

In this post, we are going to explore:

• A break down of management fees & how are they used by VCs
• Why some syndicate leads charge management fees while others do not
• My personal Hot Take on me as a SPV Lead taking management fees and why Zach disagrees
• Syndicate leads thoughts and feedback on management fees

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