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Why is recycling fees complex?

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Mar 07, 2024
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.`
1 answer
Accepted Answer
May 04, 2024
There are two reasons:
  • It extends the fund life. If you are on Fund 1, you want Fund 1 to get done fast so you can move to Fund 2.
  • It’s hard to explain to LPs. It will take the pitch away from the thesis and to a discussion about the mechanics of recycling.

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