Note: This modeling tool is a resource related to our ongoing series on venture fund formation and management. To learn more about managing a fund, download this free eBook today Venture Capital: A Practical Guide or purchase a hard copy desk reference at Amazon.com.
This Venture Fund Economics Modeling Tool is designed to help you understand compensation for a venture fund's General Partners. The overall structure of the worksheet is quite simple. If you are interested in editing or enhancing this Google Sheet, please select "Make a Copy" under the "File" menu.
There are two main areas where you supply information into this worksheet: 1) Fund Size, Fees and Results and 2) Payments to Partners and Fund Operations. Based on your inputs, Total Compensation for the different partners is calculated. Please note that you can add data into any cell that is filled in yellow. All grey cells should not be changed as they contain formulas.
Fund Size, Fees and Results
There are 4 variables to supply in this section.
First, you need to enter the Fund Size. This represents the total amount of capital committed to the fund by the Limited Partners and the General Partners.
Next, the Management Fee is the annual fee paid out to run the fund. This fee is paid as a percentage of the total fund size. In this spreadsheet, the full management fee is paid out in the first 5 years. For the second 5 years of the fund, 1/2 of the management fee is paid out. So, for example, for a $50M fund with a 2% management fee, a management fee of $1M will be paid in each of the first five years. During the next 5 year period, $500K will be paid.
Next, Carry is the percentage of the fund's profits that are paid out to the General Partners.
And finally, the Distributed to Paid-In (DPI) Capital Ratio is the total amount of capital returned to investors divided by the total amount of capital invested in the fund.
Payments to Partners and Fund Operations
There are two variables you need to provide in this section.
The first is the Management Fee Allocation. For the General Partners, Venture Partners and Fund Operations, you should allocate a percentage of the annual management fee. Think of this allocation as you would allocate expenses in a business.
The Carry Percentage Allocation is where most of the compensation for a venture fund will come from for the General Partners. In most cases a fund will allocate the majority of the payout to the GPs and reserve a smaller amount for any venture partners and some of the fund's staff.
Once you’ve entered these variables you will be able to accurately assess compensation.