What are all of the fees in a Start Fund?
The Start Fund works on a modified 2/20 model. The Investment Lead receives half of the 2 in the 2/20 model for a Management Fee, which amounts to 10% of the total invested amount by a limited partner. The other half of the 2 in the 2/20 model is allocated as an Operations Fee, covering all setup and annual operating costs. The Investment Lead receives 18% of the carried interest, while 2% of the carried interest (which equals 10% of the total carried interest) is used to cover fund expenses, such as legal fees, extraneous administration costs, compliance risks, and other operational necessities.
For reference the 2 in a 2/20 model is 2% collected per year for 10 years, so it is 20% of the funds raised.
What is the management fee structure?
The 1% management fee is paid out over 2 years instead of paying out 1% per year for 10 years. The Investment Lead receives 5% in year one and 5% in year two. The management fee must be split over two years due to regulatory requirements. The 5% per year rate is significantly higher than a traditional fund, which may have up to a 3.5% annual management fee in the first years with an aggressive waterfall. The Decile Group supports making the management fee optional if the Investment Lead chooses to invest that money from the beginning.
What are the fees and costs for a $1M Start Fund?
Here are the total fees and costs with a hypothetical fund of $1 MM:
- $0 to set up the fund
- $0 in annual fund expenses, compliance costs, and tax costs
- $100K in Management Fees paid $50K per year for 2 years
- $100K in Operational Fees paid over 10 years
- $800K to invest in venture capital deals
The fee structure is a percentage that remains the same regardless of fund size. The percentage allocations remain consistent if you start with $500K and grow to $3.5 MM.
What is the capital call structure of the Start Fund?
Each limited partner admitted to the Start Fund will have one capital call of 100%. The Investment Lead can create a virtual capital call structure by having limited partners close on additional capital over the three-year fundraising and investment period. For example, a limited partner can commit $100K in the first year, $100K in the second year, and $100K in the third year, for a total of $300K.
When are the fees collected with a Start Fund?
When a limited partner wires into a Start Fund, the Management Fee and the Operations Fee are automatically allocated at the time of the wire, leaving the remaining balance ready for investment. For example, if a limited partner signs the LPA and wires $100K after the Start Fund First Close, then $10K would be removed for the Management Fee and $10K for the Operations Fee, with $80K available to invest.
How does the first closing of a Start Fund work?
The Start Fund must reach a minimum of $500K USD in limited partner wires to complete the official First Close. In its sole discretion, Decile Group may allow Start Funds to close with as little as $250K USD in limited partner wires. Fundraising momentum is the main consideration in allowing the Investment Lead to do a First Close with less capital. If the target minimum is not achieved within 6 months, then capital will be returned to limited partners.
What is the process for calling capital with a Start Fund?
Once LPs sign the limited partner agreement (LPA), Decile Hub automatically manages a single 100% capital call. Once the capital call is wired from the limited partner, they are immediately admitted into the fund after the First Close. Fees and expenses are immediately deducted from this single capital call upon completion.
Will having communicated capital calls to LPs be an issue?
Investment Leads that told limited partners about capital calls will need to explain that the Start Fund will have one capital call, which should be easy to explain for two reasons. Limited partners investing $100K or less often prefer one capital call. For larger investors, you can use the virtual capital call structure. Since the virtual capital call structure is voluntary, this is actually a benefit to the limited partner.
Will Decile Group or affiliated entities invest directly into the fund?
Not currently. The Decile Group offers programs to help GPs fundraise that are by invitation only. Decile Capital has a fund of funds that may also make investments into Start Funds in the future, but the mechanisms for investment have not been finalized, yet.