Fund Structure
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Quick Answer
The cumulative impact of management fees on net returns over a fund's lifecycle.
AUM fee drag measures how much of a fund's gross returns are consumed by management fees over its 10+ year life. A 2% annual management fee on committed capital can consume 15-20% of total invested capital over a fund's life, significantly reducing net returns to LPs.
In Practice
A $200M fund charging 2% annually generates $4M/year in fees. Over 10 years, that's $40M — 20% of committed capital — before a single dollar of carry is earned.
Why It Matters
Fee drag is why net returns matter more than gross returns. LPs increasingly scrutinize fee structures, especially for larger funds where dollar amounts become enormous.
VC Beast Take
Fees are the only guaranteed outcome in venture capital. Everything else is probabilistic.
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AUM fee drag measures how much of a fund's gross returns are consumed by management fees over its 10+ year life. A 2% annual management fee on committed capital can consume 15-20% of total invested capital over a fund's life, significantly reducing net returns to LPs.
Understanding AUM Fee Drag is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
AUM Fee Drag falls under the fund-structure category in venture capital. This area covers concepts related to how venture capital funds are organized, managed, and governed.
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