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Management fee step-down

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Quick Answer

A management fee step-down reduces the fee rate, the fee basis, or both, once the fund's investment period ends.1,2

What it is

The step-down reflects the shift from sourcing new investments to managing existing ones. It commonly combines a lower rate with a move from committed to invested capital, and because the two changes compound, the step-down's real effect is usually larger than the rate change alone suggests.1,2

Operational context

What good looks like

Why It Matters

Over a full fund life the step-down terms move more money than the headline fee rate does, because a rate reduction and a basis change compound rather than substitute for one another.1

Term Family

Related concepts

Management fee

Frequently Asked Questions

What is Management fee step-down in venture capital?

The step-down reflects the shift from sourcing new investments to managing existing ones. It commonly combines a lower rate with a move from committed to invested capital, and because the two changes compound, the step-down's real effect is usually larger than the rate change alone suggests.

Why is Management fee step-down important for startups?

Understanding Management fee step-down is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.

Sources & References

  1. 1.preqin-pro-glossary — Preqin Pro Glossary of TermsPreqin Pro Glossary of TermsPreqin (BlackRock)(A management fee step-down reduces the fee rate, the fee basis, or both, once the fund's investment period ends.)secondary · T2 · fees-economics · structure
  2. 2.ilpa-principles-3 — ILPA Private Equity Principles 3.0 (2019)ILPA Private Equity Principles 3.0 (2019)ILPA(A management fee step-down reduces the fee rate, the fee basis, or both, once the fund's investment period ends.)primary · T1 · fees-economics · structure
  3. 3.ilpa-model-lpa-wof-ts — ILPA Model LPA Term Sheet — Whole-of-Fund Waterfall Version (July 2020)ILPA Model LPA Term Sheet — Whole-of-Fund Waterfall Version (July 2020)ILPA(A management fee step-down reduces the fee rate, the fee basis, or both, once the fund's investment period ends.)primary · T1 · fees-economics · structure
  4. 4.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(A management fee step-down reduces the fee rate, the fee basis, or both, once the fund's investment period ends.)secondary · T2 · fees-economics · structure
  5. 5.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(A management fee step-down reduces the fee rate, the fee basis, or both, once the fund's investment period ends.)primary · T1 · fees-economics · structure

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