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General VC Questions

What are the most common alterations to the traditional 2/20 compensation model seen in healthcare funds?

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Community Member
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Mar 29, 2024
I asked Decile Base the following question and it responded, "I can't confidently answer this question, please start a new Decile Base post to have this question answered." Below is my question. 

What are the most common alterations to the traditional 2/20 compensation model seen in healthcare funds? 
2 answers
Community Member
Mar 29, 2024
Hi Shana, I'm going to move your question over to the "General VC Questions" category.
Accepted Answer
Mar 29, 2024
LPs are most familiar with the 2/20 model. If you deviate from this, you will struggle to raise money, especially as an emerging manager. There are many areas to innovate as an emerging manager. Innovating on the standard fee model is not one of them because it will create a lot friction with LPs. 
Thanks Mike. I was referring to a section in the article titled Venture Fund Economics that discusses how 2/20 model alterations are negotiated by fund managers and investors to "better align with specific strategies, risk and market conditions" including budget-based management fees, preferred return, deal-by-deal carry etc. Any insight you can provide on common alterations like these seen in healthcare funds would be greatly appreciated. 
Community Member
Apr 08, 2024 3:21pm
You should avoid budget-based management fees, preferred return, deal-by-deal carry etc. All this stuff brings in un-necessary and excessive complexity and cost and are not beneficial, especially for emerging managers. Our recommendation is to do a clean  2&20 fund with no special terms. 
Apr 08, 2024 3:36pm
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