By Jahn Karsybaev, Co-Founder and Managing Partner at Big Sky Capital.
At Big Sky Capital, we wanted to create a standard yet simple structure of our fund, which could be easily replicated for all of the subsequent funds. In this article, we provide a breakdown of a typical structure of a venture capital fund.
A typical structure of a venture capital (VC) fund may include the following components:
General Partner (GP): The GP is the management entity of the fund and responsible for managing the fund’s investments. The GP is typically made up of a team of experienced investment professionals who have a track record of success in venture investing.
Limited Partner (LP): The LPs are investors who provide the capital for the fund. LPs can be institutions, such as pension funds or university endowments, or high net worth individuals.
Fund Size: The fund size is the total amount of capital that the GP has raised from LPs. This amount is typically stated as a target or range, and can vary widely depending on the investment strategy of the fund.
Investment Period: The investment period is the time frame during which the GP is authorized to make new investments using the fund’s capital. The investment period is typically several years and may be followed by a harvesting period during which the GP focuses on exiting investments.
Management Fee: The management fee is the annual fee that the GP charges the LPs for managing the fund. This fee is typically a percentage of the total fund size and covers the cost of the GP’s operations. On average, this fee is a range between 2 – 5% of the committed capital for that particular fund.
Carry: Carry is the share of profits that the GP receives as compensation for successful investments. Carry is typically a percentage of the fund’s profits above a certain threshold and is designed to align the interests of the GP with those of the LPs. At Big Sky Capital, our carry is a standard 20%.
Investment Strategy or a Thesis: The investment strategy outlines the types of investments that the fund will make. This may include specific sectors or stages of companies, and will generally be informed by the expertise of the GP team. For example, the investment thesis of a Big Sky Capital is to invest in exceptional founders who are building enterprise SaaS solutions in emerging markets.
Investment Committee: The investment committee is a group of individuals within the GP who are responsible for evaluating and approving new investments. The investment committee may include both senior and junior members of the GP team, and may consult with outside experts as needed.
Overall, the structure of a VC fund is designed to provide a framework for raising and investing capital in a way that aligns the interests of the GP and LPs while generating returns for all parties involved.