There's a lot of nuance here. A $100mm fund could be a single guy/gal working from her office, running money in an industry she knows with a little bit of admin support. In that world, $2mm a year in fees is plenty to keep the lights on. Some fund managers I know in this situation don't call all the fee; there may be social considerations / signaling the manager prefers to make. Some spend it all and then some of their own. Absolutely none of them think that the fee is 'retirement money'; they all have eyes on the prize of a 3-5x and carried interest getting them to $100m or so, when they can do whatever thing it is they want to do that got them into running the fund.

On the other hand, a $100mm fund could be a 'contender' fund that wants to raise a large fund, and is in a competitive industry -- it's trying to get on the cap tables that, say, Mayfair gets on to, and so it needs to staff recruiting support, tech help, marketing people. Perhaps it's multi-jurisdiction. In that world, $2mm is way, way too little, and the GPs may well be financing the fund personally through fund 1 and into fund 2, depending on the follow-on raise. They are aiming at running, eventually, $1bn+ per fund in three to four stacked funds, and taking home $1bn after 20 years (or less?) of good effort for each of the original GPs.

These are caricatures, and there's much more than this to the lifecycle of venture funds, but since we're at HN and VC is a big part of the conversation, I think it's good for hackers and founders to understand the counterparties they do business with, and particularly to be able to read the signals of the VCs they talk to, while the VCs are reading the signals of a desperate, out of date deck.

You've already spent a lot of time to raise the fund, unpaid or paid out of proceeds from a previous fund first. Then you have to put in a massive effort to find, sort through and vet investments. Either there are quite a few of you, or you have a nightmare work pressure for several years unless you already have a massive rep (and it's still work).

And most LP's will expect the GP's to have significant skin in the game. E.g. at my previous employer, every staff member was expected to have at a minimum the equivalent of 1x gross yearly salary committed within a few years.

VC salaries are not that great outside the top tier funds or unless you're one of the GP's.

It could be "retirement money" for a handful of the GP's at the top tier funds, but they're only in that position in the first place because they have a lengthy track record, and so their past earnings from carry etc. will still dwarf any operating fee from their current fund.

Yep I'm sure I can speak for all of the $100M-fund work out of your home office types. Or at least > 99%. The Venn overlap between "content with promising people you'll make money for them believably", "too cheap to spend on office / marketing because your fake pitch was so good nobody will need it to feel comfortable", "enough executive function to make believable calls on believable companies while doing no sourcing work" and "$2mm for three years until people catch on, but def don't send me to prison" is absolutely zero or very close to it.

Most who run a fund like this do not think of it as low pressure or cushy, regardless of goals. Something I tell my portco CEOs a lot is that as much as they want to raise money, or need money for their company, in general, VCs they are talking to need to write checks even more. Just not bad checks.

I've not lost billions twice, but have definitely lost tens of millions, and worked alongside at lost one person who lost a billion once... It's an "interesting" business to be in...

Third time's the charm :)

If you ever need someone to help you lose a billion, I'm sure I can think of a few ways of doing so quickly and efficiently.

a billion is a lot though. I don't know that I could come up with ways to do that much so quickly and efficiently. what would be your ways?

It really depends

Spending a billion dollars take a lot of effort (or so I assume; I've "only" spent millions). People will ask annoying questions like "where is the billion dollars coming from, I had no idea you were a billionaire", and ask about AML etc.

Conversely, driving down the value of a company that's already worth billions is "easy": Just publicly demonstrate your willingness to drive the company totally into the ground.

Or if you want speed, and have access to the funds, the super-fast way would be transferring a billion worth of crypto to a random address.

For my part, my biggest "losses" were paper values in startups that failed or didn't get the exits we'd hoped for. There it's also "easy".

It really varies. I worked for a VC for years, and it often takes substantial reputation to be able to demand fees like that. It also takes substantial reputation to be able to get high enough quality inbound dealflow to be able to do so with few people.

E.g. I know of a decent number of funds that size or smaller with a staff in the range of 10, a few with well above that. Even at 2% it's suddenly not so much money then, even less so when you start to factor in costs.

EDIT: You may also sometimes "on paper" have fees like that, but quietly offer discounts etc. to convince investors. On top of that comes often quite substantial requirements to buy into the fund for at least senior staff that seriously reduce the de facto salary unless the fund also does well enough that it's the carry that matters.

> On top of that comes often quite substantial requirements to buy into the fund for at least senior staff

This is a clearly beneficial requirement, but your point is fair about it leading to 'on-paper' comp looking high. But I'd even go so far as to say that the majority of comp for senior people should be contingent (not sure if that's typical).

Yes, but it's tricky here because often it's upfront. The only reason it wasn't our case was that carry was unusually spread out over the team and the buying requirement was for everyone, so the LPs accepted that as long as there was a clear plan in place for everyone to buy in, it was ok.

Note that given salary levels this means that over the 10 year runtime of the fund, most of us would be giving up nearly ~20% of our 10 year aggregate gross salary, most of us within 4-5 years. My gross salary during that period was not much different from in my job before - it was a pretty steep sacrifice for a shot at that carry.

> Yes, but it's tricky here because often it's upfront.

Fair. These sorts of things are usually pretty nuanced.

> it was a pretty steep sacrifice for a shot at that carry.

I totally get that, but it also seems like the ideal balance of interests. To many obvious failure modes if you don't have enough skin in the game. Of course that works the other way too, the upside in good-to-great cases have to make it make sense.

I mean, I made the choice to join because I saw it as a good option. But even so, was an unusually risky tradeoff between an effectively low basic for a higher bet at the return. I also certainly think it's understandable that LPs want it that way. Main point is that it's only lucrative if the fund pays out on carry, and you take a high risk for something which might possibly pay out ten years in the future. If it doesn't pay out, you've worked years at a not very high (for tech) salary.

Which is effectively like old school startups when you think of it … relatively low salaries and a bunch of options that may or may not turn to gold in 10 years .

Sure, and that's fair enough as long as staff gets a big enough stake. And to be clear, we did. Every single person outside the exec team/general partners on that team had an unusually high stake in the total carry. Our main investor buying us out and turning it into a boring corporate not being the end game we had in mind aside, it was one of the most enjoyable startup experiences I've had (we were a bit of a hybrid, in that while we were operating a single fund, a lot of my work was towards getting tech in place to optimize delivery of subsequent funds).

A lot of startups think it's still ok to pay under the odds once hiring staff that are getting tiny fractions of a percent, though, and at that point, the risk-adjusted value of those options is not worth taking a cut for relative to a bigger corporate with somewhat predictable share performance and liquidity.

We’re on the same page it sounds like.

Is that 2% on cash the VC fund directly contributed, or is it 2% on total funds injected into the business including loans the VC saddles the business with? (Or is that kind of leverage typically only done by private equity funds?)

Whatever the percentage for a given fund is, this is the rate the investors in the fund (the limited partners) pays to the fund managers (the general partners) to manage the fund. It's separate from what the companies they invest in gets.

So around 5-10 software engineers (compensation in finance seems mostly similar to SW), not including any other costs like office, etc? That's not a lot of money.

There's a reason most small VC funds have mostly useless infrastructure.