SaaStr · 2015-08-10
· 3950d
Understanding the Venture Capital Firm Business Model: 2-and-20 Fee Structure
Venture capital firms operate on a '2-and-20' model where Limited Partners pay 2% annual fees on committed capital and General Partners receive 20% of profits after returning the fund size. Partners must also co-invest several percent of committed capital and wait 10-12+ years to realize profits, with success heavily dependent on investment performance.
Metrics in this report
Annual Fees Generated
3.6$m
example
For a $180m fund at 2% management fee
Carry/Profit Share
20%
standard
Percentage of profits above 1x return retained by General Partners
Fund Lifecycle Duration
10-12years
typical
Time from capital commitment to full profit realization
Job Security Threshold
5-10years
maximum
Time before underperforming partners typically lose their positions
Management Fee
2%
standard
Annual fee on committed capital for venture capital funds