Partners often want ownership in the management company because it provides them with fund management fees collected from LPs (assuming those fees aren’t reinvested back into the fund or used to pay operating expenses). What’s the Value of a Management Company? These obligations tend to be less onerous than the requirements for Registered Investment Advisers (RIAs). An ERA is an investment adviser who does not need to register with the SEC formally but has specific reporting and filing obligations. A management company can claim ERA status if it meets the Venture Capital Fund Exemption or the Private Fund Advisers Exemption under the Advisers Act. The typical filing status for management companies acting as advisers to funds focused on venture investing is an Exempt Reporting Adviser (ERA). The filings may differ depending on the particular assets the fund intends to invest in and the total assets under management. The management company may also make certain regulatory filings with the SEC or specific states, given that it's rendering investment advice to the fund(s). For example, the Andreesen Horowitz management company-rather than any single partner of the firm- owns the “a16z” trademark. Management companies own the brand and other intellectual property associated with the fund. Management companies may help insulate fund managers from some liability associated with running the fund. The management company uses the fund’s management fee to cover these expenses. Management companies enter into lease agreements, service contracts, and other agreements needed to run the fund. These expenses also generally come from collected management fees. The management company might also pay for operating expenses such as travel for fund managers to meet founders and potential investors. The management company traditionally pays expenses associated with employees, such as salaries and benefits packages, out of management fees collected from the fund’s investors (who are known as limited partners or "LPs"). The management company typically enters into employment agreements with employees and contractors who help manage the fund. Fund management fees typically are paid directly to the management company. Management company responsibilities include: What is a Management Company?Ī management company is a business entity-typically an LLC-that manages the operational business functions associated with running a venture fund or group of funds. But first, let's explore why GPs set up management companies at all. This guide provides an overview of best practices for emerging fund managers who want to structure and operate a management company. Incorrect handling can result in costly disagreements and time-consuming amendments. Choose wisely, as this will affect how you manage your fund. One of the first things you'll likely do is establish a management company to operate the fund.Īs the fund managers (often referred to as the general partners, or “GPs”), you have many options for structuring this new entity. Let's say you want to launch a venture fund with a friend. More experienced GPs may opt to set up a multi-member management company to reflect the actual responsibilities of the partners.Some new GPs prefer to create single-member management companies to simplify logistics and limit costs.It also owns the fund’s trademark and brand. The management company is responsible for collecting fees and paying expenses.It’s responsible for managing a venture firm’s operations across its funds. A management company is a business entity created by a venture firm’s general partners (GPs).
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