This essay is being written. It accompanies the Fund Economics Calculator.
Most emerging managers can tell you their fund size, their target check size, their thesis. What they can't tell you -- because nobody told them -- is what they'll actually take home in year one, year three, year seven.
The 2-and-20 model sounds generous until you run the numbers on a $10M fund. Two percent of $10M is $200,000 a year. That's supposed to cover your salary, your analyst, your legal, your travel, your fund admin, and your LP reporting. Before you've made a single investment, you're already underwater.
The management fee on a small fund doesn't manage anything. It barely survives.
This is why the fund economics question matters more than the thesis question for emerging managers. You can have the best strategy in the market, but if you can't sustain operations long enough to deploy the capital and wait for returns, the strategy is irrelevant.
We built the Fund Economics Calculator because this is a math problem every GP should solve before they raise their first dollar. Not after.
Full essay coming soon. Try the calculator →