"2 and 20"
Last updated
Quick Answer
"2 and 20" is market shorthand for a 2% management fee and 20% carried interest, not a defined term.1
What it is
The phrase is widely used and has no standard-setter behind it. It conceals the variables that decide the economics: what the management fee is charged on and whether it steps down, and what base the carry applies to and what threshold sits ahead of it. It is recorded here because readers meet it constantly, labelled as market usage.1,2
Operational context
What good looks like
Why It Matters
Readers arrive with the phrase already fixed in mind, so the entry has to show that it settles neither the fee basis nor the carry base — the two variables that actually decide what a manager is paid.1
Common mistakes
Term Family
Related concepts
Related Questions
What does charge 2 and 20 mean?
"2 and 20" is market shorthand for a 2% annual management fee and a 20% carried interest, not a defined term with a standard-setter behind it.
What is the 2 and 20 rule in finance?
It is not a rule — it is a widely used shorthand for a 2% management fee plus 20% carried interest, and nothing requires or standardises it.
Frequently Asked Questions
What is "2 and 20" in venture capital?
The phrase is widely used and has no standard-setter behind it. It conceals the variables that decide the economics: what the management fee is charged on and whether it steps down, and what base the carry applies to and what threshold sits ahead of it.
Why is "2 and 20" important for startups?
Understanding "2 and 20" is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
Sources & References
- 1.metrick-yasuda — Metrick & Yasuda, *The Economics of Private Equity Funds* (Rev. Fin. Stud. 2010)Metrick & Yasuda, *The Economics of Private Equity Funds* (Rev. Fin. Stud. 2010)Wharton / Rodney White Center("2 and 20" is market shorthand for a 2% management fee and 20% carried interest, not a defined term.)secondary · T2 · carry-mechanics · term
- 2.ilpa-fund-terms-2021 — Industry Intelligence Report — "What's Market in Fund Terms?" (2021)Industry Intelligence Report — "What's Market in Fund Terms?" (2021)ILPA("2 and 20" is market shorthand for a 2% management fee and 20% carried interest, not a defined term.)primary · T1 · carry-mechanics · term
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