# Management Fee

## Quick Definition
The annual fee VC funds charge to cover operating expenses, typically 2% of committed capital.

## What is Management Fee?
Management fees cover fund operating costs: salaries, office, travel, legal, etc. LPs pay 1.5-2.5% of committed capital annually. Fees are charged regardless of fund performance.

## Fee Structure
During investment period (years 1-5), fees are on committed capital. After investment period, fees often step down and shift to invested capital. Total fees over fund life can be 15-20% of the fund.

## Why Founders Care
Fees come out of the fund, reducing capital available for investments. A $100M fund with 2% annual fees loses $20M to fees over 10 years. Only $80M actually gets invested.

### Formula
$100M fund, 2% management fee:
- Annual fee: $2M
- 10-year fund life: $20M total fees
- Capital for investments: ~$80M

Partner salaries, operations, legal all come from this.

### Example
$200M fund with 2%/1% structure:
- Years 1-5: 2% on $200M = $4M/year = $20M
- Years 6-10: 1% on $150M invested = $1.5M/year = $7.5M

Total fees: $27.5M over fund life.

~$172.5M available for actual investments.

## Related Terms

[**Most Favored Nation (MFN)**  
A provision guaranteeing an investor will receive terms at least as favorable as any subsequent investor receives.  
Learn more](/content/terms/most-favored-nation-mfn/index.html)

[**Qualified Financing**  
The minimum raise amount that triggers automatic conversion of convertible notes or SAFEs.  
Learn more](/content/terms/qualified-financing/index.html)

[**Maturity Date**  
The deadline by which a convertible note must be repaid or converted to equity.  
Learn more](/content/terms/maturity-date/index.html)

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