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Is a 25% Fund of Funds Proposal with These Terms Typical, Aggressive, or Worthy of a Counteroffer?

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May 03, 2023

We had an interesting fund of funds proposal for 25% of our fund. *Do you know if the proposal is typical or aggressive or have advice for a counter?* This is the offer at a high level: • 40% of commitment allocated to initial investments of our f...

Top answer:

You’re not going to be able to honor these terms because they are dependent on the company. What if the company doesn’t want them to lead? These are definitely NOT standard terms.

 -  Mike Suprovici
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Do Anchors Seeking Favorable Terms Align with HBS Study Findings on Traditional Private Equity?

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May 03, 2023

Is it worthwhile or advisable to politely push back on anchors requesting favorable terms with resources we find that suggest that 'In contrast to traditional private equity settings none of the interviewed [for this HBS study] anchors sought fee ...

Top answer:

Avoid anchors in Fund 1s and avoid favorable terms for any LP

 -  Mike Suprovici
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1

What is the Optimal Way to Display a Single Management Fee Rate on Slides for a 10-Year Fund?

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May 03, 2023

What is the best way to present management fees as a single number on slides? For example we want to front-load the fees for our 10Y fund at 3.5% for the active investment period (3 years) and then drop them to 1%. Average over 10years comes to 1....

Top answer:

Put 2% average on your terms page. In parentheses next to it you can briefly describe the front loading.

 -  Mike Suprovici
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Do You Assign All Due Diligence Costs to LP or Deduct Them from Management Fees in Fund Expenses Modeling?

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May 03, 2023

Hi Everyone when modelling fund expenses are you assigning all due diligence costs to LP or do they go from the management fees?

Top answer:

You should assume that they will come from management fees. In general, it’s good practice to reduce the additional expenses to LPs.

 -  Mike Suprovici
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Where to Allocate Expenses for Attending Port Co Board Meetings: Management or Fund Expenses?

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0
May 03, 2023

Where should we bucket expenses (travel+frugal entertainment) associated with attending port co board meetings? Management Co Expenses or can that be pushed to Fund Expenses?

Top answer:

You can _technically_ charge stuff like this as a fund expense, but some/most LPs would have a problem with that because that’s part of your job and they are commonly paid from management fees. So, typically those are done at the ManCo l...

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What is the typical ownership percentage for a seed stage investment?

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5
May 03, 2023

What is the typical ownership percentage for a seed stage investment?

Top answer:

Though this varies widely, each investment round would sell between 10% and 25% of the company. Best practice is to model the capital journey, tools like this one from Foresight https://foresight.is/cap-table/ are recommended

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Do you suggest to model catchup and claw back clauses?

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May 03, 2023

Top answer:

I would not model them, no. Clawbacks are unusual circumstances that don't occur unless the fund is in trouble. Catch-ups we do not recommend.

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Community Member
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Is it common that funds charge the startup investee a fee to cover for your due diligence costs?

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12
May 03, 2023

Is it common that funds charge the startup investee a fee to cover for your due diligence costs?

Top answer:

No. VCs will commonly charge portfolio companies for legal fees associated with a deal up to a cap in the term sheet, but it is uncommon to charge for due diligence fees, such as a software audit. These fees can be charged to Limited Par...

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Top answer:

Exits can take longer than the standard fund life. However, typically, when extending the fund, VCs don’t charge management fees. The earlier you invest, the more likely that you may need an extension.

 -  Mike Suprovici
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