I'm glad you shed some light on this. It's one of a class of fund terms that has nuances (many of which you point out) but usually gets the one-size-fits-all treatment. Another is the arbitrary "7-9%" preferred return (for funds that have them) which is somehow still market in a world with negative interest rates and double-digit public equities returns. Despite the opportunities for improvement (and alignment), many GPs are understandably reluctant to get clever with any of these lest they scare off LPs with "non-standard" terms.
Samir, right on. You have a real sense of GP economics at emerging firms mine--and you haven't even factored in the fundraising costs, which typically don't come out of the management fee and have to be fronted by the team.
I'm glad you shed some light on this. It's one of a class of fund terms that has nuances (many of which you point out) but usually gets the one-size-fits-all treatment. Another is the arbitrary "7-9%" preferred return (for funds that have them) which is somehow still market in a world with negative interest rates and double-digit public equities returns. Despite the opportunities for improvement (and alignment), many GPs are understandably reluctant to get clever with any of these lest they scare off LPs with "non-standard" terms.
Great post!
Samir, right on. You have a real sense of GP economics at emerging firms mine--and you haven't even factored in the fundraising costs, which typically don't come out of the management fee and have to be fronted by the team.