Let’s take a quick look at each of these factors and then we can run a few example cases to see what range of compensation a VC can expect from an early stage fund.įund Size: Are you running a $10M, $50M or $100M fund? There are numerous factors that drive overall compensation for a VC in a venture fund. So with all we discussed above, what level of compensation can a VC make running an early stage venture fund? Bottom line… don’t expect to boost your income through board compensation. ![]() Furthermore, in some fund agreements, any compensation received through board director fees may ultimately reduce the annual management fee paid to the fund. It’s their day job.įor these reasons, it’s unlikely that a VC will get additional stock in a company through board compensation. Third, in the case of VCs, they are already being paid a management fee, and some carry for duties like board service. Second, they are already major shareholders by way of their fund, and However, the VC investor component of the board is a bit different for a few reasons:įirst, they appointed themselves by contractual right It is not uncommon for individual angels to be paid modest compensation in the form of stock. ![]() But when it comes to the investor board seats, compensation can vary by type of investor. Here’s a typical structure for an early stage board:ġ or 2 from the Management Team: CEO and a co-founderįor the management directors, compensation practice is typically just their ordinary compensation and bonus plan and perhaps participation in the company’s option plan (since they likely already have a lot of founder stock.) For independent directors, it is typical to give options or restricted stock units totaling 0.25%-1.5% of the company. Get Seraf Compass articles weekly » In addition to receiving compensation from management fees and carry, should VCs expect to receive compensation if they take a board seat on a portfolio company? These advisors can be paid in a variety of ways, but most often are paid through a share of the GP carry and some cash from the annual management fees. There are some cases where these startup expenses are paid on a pro-rata basis by the LPs.Īnother source of expense occurs when a fund uses outside advisors to help source, evaluate and advise portfolio companies. All those expenses can make a $1M management fee from a $50M fund not seem so lucrative after all! As a side note, in the process of forming a new fund, significant costs are incurred related to the marketing and legal setup of the fund. So that 2% management fee has a lot of mouths to feed and bills to pay. Travel related to sourcing deals, attending board meetings and industry eventsĪnnual meetings to keep your LPs informed and engaged Marketing programs to raise the visibility of the fund to entrepreneurs, syndicate partners and LPs Rent and operating expenses for an office venture partners, analysts, office managers, CFO, etc.) Salaries and benefits for other employees (e.g. These expenses include some or all of the following items: The annual management fee for a venture firm is designed to be used to pay the operational expenses associated with running the fund. ![]() ![]() What are some of the costs associated with running a fund and who pays for these organizational expenses? Now let's address venture fund costs and expenses, and the total level of compensation a VC can make running an early stage venture fund. In Part II we looked at historical VC fund metrics, what kind of returns LPs should anticipate from a venture fund, and some ways to improve the rate of return. In Part I of this article, we discussed the two key components of compensation in a venture fund - management fees and carry - and what level of capital commitment LPs expect from GPs. Note: This article is the seventeenth in an ongoing series on venture fund formation and management. To learn more about managing a fund, download this free eBook today Venture Capital: A Practical Guide or purchase a hard copy desk reference at.
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