\n<\/p>\n
VCs often use<\/span> the short-hand phrase \u2018two and twenty\u2019 to refer to the 2% of annual management fees a venture fund might take and the 20% carried interest (or \u2018performance fee\u2019) it would charge. In a nutshell: If a venture fund turns a $100 million profit from its investments, the fund gets to keep $20 million of that, and the remaining $80 million is paid out to the limited partners.<\/p>\n The \u201c2-and-20\u201d fee structure was originally associated with hedge funds, but VC firms and other investment funds use it as well. The structure breaks down into two types of fees: a management fee and a performance fee.<\/p>\n The management fee is a yearly charge calculated based on the total assets under management (AUM). Typically, the management fee is 2% of AUM, but new data from Carta<\/a> shows that the 2% figure isn\u2019t as universal as you might have been led to believe.<\/p>\n \u00a0<\/p>\n First, it\u2019s useful to understand what the management fee is for. Basically, it compensates the fund managers, regardless of the fund\u2019s performance. So a VC firm that charges a 2% fee for managing a $100 million fund will receive $2 million per year to cover rent, staff costs, marketing, travel and, well, everything else.<\/p>\n<\/p><\/div>\n