Depending on the offering, there may be fees charged for the management and organization of the SPV. The most common types of fees that investors should be aware of include:
- Management fee: A one-time fee for operating the Fund, prorated among the LPs and subtracted from the capital contribution prior to investment; typically 2% of the amount committed.
- Organization fee: A one-time fee for operating the Fund, pro-rated amongst the LPs and subtracted from the capital contribution prior to investment; typically 1-3% of the gross amount committed.
The management fee and organization fee will be deducted from your commitment amount to arrive at the final subscription amount. Assuming the fees described above, if you commit $10,000, you will be charged a $200 management fee and an estimated $250 organization fee. The total fee is $450 and your final investment amount or your capital contribution to the SPV is $9,550 ($10,000 - $450).
Beyond the upfront fees mentioned above, there may be a carried-interest, taken by the investment advisor or its affiliates at the time the fund liquidates or provides a distribution, if the fund’s investment is profitable. Certain funds may have a carried interest fee structure favorable to larger checks (i.e., 20% carry for principal amounts less than $25,000, 15% for principal amounts between $25,000 and $100,000, 10% for principal amounts greater than $100,000).
In the example above, the $9,550 is then used by the SPV to purchase an interest in Company ABC. If Company ABC has an exit event that values the final subscription/investment amount 5x greater then Investor A is owed $9,550 X 5 = $47,750. Assuming the carried-interest is 20%, this would be applied to the profit. In this example $47,750 - $9,550 = $38,200 in profits x 20% carried-interest = $7,640 in carried interest fees.
More information on standard fees in venture capital can be found here.