11:05 pm - Mon, Jul 20, 2009

Bigger Isn’t Better For VC Funds

I disagree with your premise on why VC’s want to launch bigger funds, David. Nobody is retiring off of the management fees at VC firms. They just don’t raise enough capital for that 2% to significantly moves the risk-adjusted needle, especially across partners, associates and support. I don’t expect we’ll ever see mega-VC’s like we do mega-hedge funds today where yes, management fees on $10-30B+ AUM really does turn them into asset aggregators more so than asset allocators (much like mutal funds, but with an insane fee structure). In addition to falling startup costs which you’ve mentioned, the explanation of VC’s comparative capacity constraint is simple - limited mandate, illiquidity, deal flow, deal complexity, oversight, and significant goose-egg returns risk.