Fund Economics
92 Posts
Ask about fund economics, including metrics, calculations, definitions, allocation strategies, and modeling practices. The inputs includes models, tactics, strategies, best practices, and practical guidance from top back office and fund modeling experts.
What is the most common free structure for a fund of funds?
I know the 2 and 20 wouldn't apply here, since you are investing in directly in funds.
If 30% of the portfolio goes into Funds, and 70% is direct into companies (mostly coinvests), are you still considered a Fund of Funds?
What is a good fund I size for a fund of funds? Does the same 5-10M guidance apply as a standard fund?
What is a good fund I size for a fund of funds? Does the same $5-10M guidance apply as a standard fund?
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What are the fee structures for corporate venture capital fund?
Are the 2% over 20% fee structures any different in this model?
How are fees and roles typically divided between the fund and the corporate partner?
do investors who commit and invest funds at early stage gain more return at the exit?
Those who invested on day-1 commits for a longer period. Investors put money on day-365 should not get the same return in terms of amount. The fund return percentage might be same but the cash allocation/accumulation for return should take into account the time value of money. Any one with an experience with returns delivered to investor?
what are industry statistics about average vc returns of investments in pre-seed vs. later stages
why invest in pre-seed while risks are much higher
What is the typical share of the GP that people sell and how much will an investor typically pay for it?
The topic of selling a stake in the fund's GP or ManCo to investors has come up several times in webinars and AMAs. This seems to be a way to for the partners to raise capital to support themselves during fundraising or finance their GP commitment. Can anyone put some numbers to this idea?
Also, what happens if the fundraising effort is not successful? Does the investor lose their money or are the GPs on the hook to repay it?
Why is recycling fees complex?
Why is recycling fees complex? It seems like simple math in accounting. I asked Decile Base but got an uninformative answer:
`Recycling fees in the context of venture capital refers to the process of reinvesting proceeds from the sale or exit of a portfolio company into new investments. The "Recycle Amount" is a percentage set in the Limited Partnership Agreement (LPA) that determines the upper limit of what can be recycled and redeployed. However, a fund manager is not required to deploy up to that exact Recycled Amount percentage. It's important to note that recycling is often avoided in a first fund due to its complexity.
Why is recycling fees complex?
Recycling fees can be complex because they involve reinvesting proceeds from the sale or exit of a portfolio company into new investments. This process requires careful management and tracking of funds, and can potentially delay the start of a new fund. It can also be difficult to explain to inexperienced limited partners. Therefore, while recycling can increase the amount of capital available for investment, it also adds a layer of complexity to fund management.`
historically have pre-seed funds performed better by keeping resrvers for follow-on or by increasing the number of companies they invest in
Would love to find some aggregated data on historical performance for funds following the two different approaches.
I'm getting several questions comparing the S&P index with the possible return of our fund, how should I answer it?
1) An ordinary bank fixed deposit doubles in 7.5 years or less with zero risk. 2) S&P 500 $100 invested in 2011= $444 in 2023, a return of 344%, 12.5% per year. If Adjusted for inflation, published fund returns will be even lower. I saw a similar report from an Indian fund as well touting 2.5x returns. What am I missing here?
Does investing via a SAFE mean that the investment won't have a set valuation until a priced round?
On top of that, let's assume an investment in the seed round is made via SAFE and the share price at that stage is $0.15. In the Seed round, a priced investment comes in and the new share price is $3. In this case, is the investment from the Seed round going to get the value of the $0.15 or of the $3?
Applying the Pareto Law for forecasting
So with an understanding of the power law in its concept, does anyone know of an excel formula or model for figuring out what level of growth is needed by the 20% to break-even?
the numbers to consider:
I have written 50 checks for $100,000
Suppose 40 of them collapse to 0
suppose 8 of them have a 5x exit for me
What would the other 2 need to reach as exit value to maintain breakeven, and then growth?
What should i be considering in my model for this question?
Is this something that can be easily modeled in excel? Has someone put something like this together?
Can a sample spreadsheet be produced for fund expenses paid yearly or over the term of the fund?
Following the table here: https://govclab.com/2022/11/07/managing-fund-expenses-for-venture-capitalists/
What are typical caps and best practices (which are limited and unlimited?) and for different size funds.
Also a bit confusing that something like Travel & entertainment is a fund expense but paid for by the manager (I get it, and wouldn't if it was a fund expense it would be paid for by the fund?) - can you explain?
Thanks!
How do you calculate your personal addressable reach (PAR)?
When talking about fund return, Adeo mentions PAR (here is the post: https://www.linkedin.com/posts/adeoressi_kickstart-your-vc-success-activity-7119709217782992896-LeCv?utm_source=share&utm_medium=member_desktop). It is unclear how to calculate this variable.
What percentage of my mgmt fee and carry should I give a new partner if I'm already a year into the fund?
This new partner will help fundraise and close the 2nd half of the fund and potentially help me oversubscribe.
How exactly is management fee taken from fund?
Let's say we do 4 capital calls over 2 years, and the management fee structure is 3% for first five and then 1% for next five.
SO once an LP has transferred money into the account during the initial two years -- part of that capital is left there to later pay management fee as per schedule?
do i need to do the financial modelling? and does decile hub provide that? what software to use or excel?
and at which point in the program do i do this?
Accelerator upfront management fee
How much is an acceptable fee (as a %) for an accelerator fund to take as an upfront fee instead of charging management fees, per year, as 2% of committed capital?
Success/failure rate of investments
My assumption about portfolio results are the following: if we make 20 seed investments, 2 could be highly successful, 8 will be boring survivors (returning little) and 10 will totally fail. Is that ratio in line with typical seed results? If not, what do you believe is more typical?
Forecasting exit value of startup?
Forecasting is obviously inaccurate, but how would you model a portfolio with "realistic" exit valuations?
Could startup's current deck provide any usable inputs for such model? E.g. market size, market CAGR, team experience etc?
Obviously when founders say their ambition is just 100-500M$ exit, that tells something. But what else and how to factor in the assumptions?
Capital Call Frequency
Is there a standard or 'rule of thumb' that GPs should follow for capital call frequency? What frequency would allow the fund to be liquid but respectful of the LPs?
Deployment KPIs for first-time fund managers
What are the deployment KPIs required for first-time fund managers towards the goal of second fundraise?
Strategic Portfolio Management in Venture Capital
How do venture capital firms strategically balance their investment portfolios to mitigate risk and maximize returns, while considering factors beyond financial performance, such as social impact and environmental sustainability?
What is the best economic strategy for funds focusing on one sector?
I am particularly interested in healthcare, medtech and biotech startups in developing countries but I struggle to understand how specialized funds can minimize the risk of industry exposure. As an example, here in Brazil, the private healthcare system is at a record low, which in turn makes the entire industry struggle financially. How to minimize the risk on an industry performing bad when you are not diversifying sectors?
Impact Investing Returns
Do Impact funds generally generate lower returns than others? What is the expectation held by Limited Partners?
Must I form a management company as a solo GP with no employees, and where I want to distribute management fees directly to the GP?
Decile Base says a ManCo should be formed. However, in Sprint 9, Deliverable 9, the "Distribution" strategy doesn't require the formation of a ManCo.
What should my Fund's carry structure be?
Should I have a hurdle rate?
What are the best free VC fund models out there?
Specifically for showing return expectations per individual startup.
How to calculate amount under management
Is the management fee based strictly on the commit amounts, or does it need to factor in reductions in the amount under management resulting from payouts of management fees?
Carry for Principals and other firm members
If I hire someone at a Principal level at my VC firm what's the general carry I should offer? Is there a rough breakdown anywhere of what is market in terms of carry offered for various roles at a VC firm?
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