Management Fee

Also called 2 and 20

An annual fee, classically 2 percent of the fund, that a VC firm charges LPs to cover salaries and operations, regardless of returns. The 2 and 20 model pairs it with 20 percent carry.

Why it matters

Management fees keep the lights on at a fund, but they also mean bigger funds earn more just for existing, which pushes some firms to raise ever-larger funds. That dynamic affects the cheque sizes and outcomes they need.

For example

On a 100 crore fund, the 2 percent management fee gives the firm 2 crore a year to cover salaries and operations, regardless of returns.

Related terms

Carried Interest General Partner Dry Powder

Go deeper

See how founders actually handle this on Raising your first round, part of the Starting Up hub.

eChai Partner Brands