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