High-fee SPVs draw scrutiny as venture fee structures polarize

Fee structures among early-stage venture managers are described as increasingly polarized, ranging from the traditional “2 and 20” to reported extremes such as “4 and 40,” while some managers charge little or no fee. The prevalence of each model is not established.

SPVs are singled out as the most concerning part of the market, with cited management fees of roughly 4% to 10%. These vehicles are also criticized as opaque and multi-layered, leaving investors uncertain about the underlying shares; a reckoning and lessons learned are predicted.

A performance-based carried-interest model with escalators tied to return thresholds is favored. Suggested hurdles include 3x, 5x or even 10x returns rather than 2x, which is characterized as an insufficient target for venture investing.