Management Fee (Two and Twenty)

The management fee is the annual charge a venture fund's General Partner collects from Limited Partners to cover salaries, office costs, and operating expenses, typically set at 2 percent of committed capital per year, most commonly across a ten-year fund life. This is the origin of the industry shorthand "two and twenty," referring to a 2 percent annual management fee plus 20 percent carried interest on profits.

How does the management fee change over a fund's life?

Many funds step the fee down after the investment period ends, often from 2 percent to between 1 and 1.5 percent, once the GP shifts from actively deploying capital into new deals to managing an existing portfolio toward exit. On a 250 million dollar fund charging 2 percent, that is 5 million dollars a year regardless of investment performance, which is why LPs scrutinize fee terms closely before committing capital.