Management fee is the annual fee a venture fund charges its Limited Partners to cover operating expenses of the GP firm. It is typically structured as 2% of committed capital during the fund's investment period (years 1-5) and steps down to 1-1.5% during the harvest period (years 5-10), paid regardless of fund performance. It is the primary cash income for VC firms during the years before exits start generating carried interest, the cash flow that pays VC partner salaries, supports firm operations, and lets VCs maintain the discipline of long-term portfolio focus without near-term financial pressure.
The structure: a $200M fund with 2% management fees generates $4M annually in management fee income during the investment perio...