VC Management Fee Expenses: A Solo GP's $1M Budget

Originally published in MondayVC Newsletter, Edition 8, June 3, 2024, on LinkedIn. Figures are as of 2024.

Key numbers: a solo GP with a virtual assistant in San Francisco needs a $1,000,000 annual management fee, $740,000 of it for salaries with benefits and tax. That is a $50M fund at a 2% fee, or $30M at 3–3.5%, plus $1–1.5M to cover the 12–18 months of fundraising.

I spent my Monday envisioning myself based in the SF Bay Area, drafting management fee expenses for team, workspace, marketing, travel, etc.

TL;DR: A solo GP with a virtual assistant and a WeWork private office in San Francisco requires an annual management fee of $1,000,000.

Analysis excludes fund organizational, administrative, and investment deal expenses.

Management Fee Expenses Structure#

Donut chart of management fee expenses: salaries with benefits and tax 74%, extra 10%, events and networking 9%, equipment and office 2.5%, analytical data 2%, online presence 1.5%, SaaS and digital workspace 1% — Management Fee Expenses Structure.

This chart groups 44 costs:

Salaries with Benefits and Tax: $740,000
Events & Networking: $90,000
Equipment & Office: $25,000
Analytical Data: $20,000
Online Presence: $15,000
SaaS and Digital Workspace: $10,000
Extra: $100,000

A cost-saving strategy has been implemented, managing simpler tasks such as website design internally and opting for the lowest-paid plans for SaaS and data. Travel arrangements include economy class flights but with VIP-level conference attendance to facilitate top-level networking.

Allocating expenses between the fundraising and investment phases reveals only a minimal difference, amounting to just a few percent.

VC Salaries with Benefits and Tax#

My peers from California's investing industry shared the gross salary levels for various roles within emerging VC firms:

Managing/General Partner: $500,000
Principal: $375,000
Associate: $300,000
Analyst: $175,000
Virtual Assistant: $100,000

Inspired from how solo-GP-managed VC firms operate, I went the same way but with the addition of a virtual assistant to potentially boost productivity by up to 40% at half the GP’s time cost.

Annual benefits by ChatGPT:

Health Insurance with Dental and Vision: $15,000
Retirement Plans 401(k): 5%
Life and Disability Insurance: 2% + $600
Professional Development: $4,000
Wellness Programs: $600

Employer-side tax contributions were also considered, amounting to 10%:

Social Security: 6.2%
Medicare: 1.45%
California State Disability Insurance: 1.2%
Employment Training Tax: 0.1% on the first $7,000
Federal Unemployment Tax: 6% on the first $7,000

The total annual costs for a solo GP with a senior-level virtual assistant, including benefits and employer taxes, come to $740,000.

Moving Out from SF Bay#

While a $500,000 salary may appear high outside the U.S., it must be considered in the context of the country's high taxes and living costs. Moreover, it offers substantial opportunities in the unique VC market.

I compared the tax implications for a $500K gross salary across various locations with the Nomad List Family Living Cost data:

Table of a $500,000 gross salary around the world, with tax, net salary, family living cost and the living cost to net ratio. Dubai: 0%, $500,000, $100,000, 19%. Singapore: 22%, $390,000, $110,000, 28%. Zurich: 35%, $325,000, $100,000, 30%. Sydney: 47%, $265,000, $90,000, 33%. London: 45%, $275,000, $130,000, 45%. San Francisco: 40%, $300,000, $150,000, 51% — Gross Salary of $500,000 Around the World.

Nomad List data align with the more accurate living cost data provider Numbeo, which can offer insight into how such numbers are compiled.

Cost of living data for non-family nomads positioned SF in the middle. However, the addition of family significantly altered the landscape. While the Nomad List's data may not directly reflect personal circumstances, calculating proportions of these costs from the net salary offers a balanced perspective.

This analysis helps identify living locations that can reduce the pressure on management fees, aligning with a more geographically flexible investment strategy.

Events & Networking#

After salaries, events and networking are significant costs. I typically attend 1–2 major conferences per year and participate in monthly meetups. However, for VCs, it’s crucial to build and maintain connections with LPs, co-investors, expert networks, and to hustle for deal flow.

Alex Samson takes a selfie under a blue sky, wearing a Web Summit 2018 badge on a lanyard — My first international conference at Web Summit 2018.

Ensuring at least one event per month, five major conferences are annually planned, with four utilized to host private events for current and potential LPs in the US, Asia, the Middle East, and Europe. Additionally, seven offline meetups are scheduled, half of which will involve travel.

After accounting for vacations and these offline events, 36 weeks remain for online participation, roughly once a week. While these online activities don't incur direct costs, they are a crucial part of the overall events and networking strategy.

Conclusion#

A $1 million budget corresponds to $50 million capital with a 2% management fee, or it can be $30 million with a 3–3.5% fee, which is acceptable for the 4-year investment phase.

However, there are no fees for the fundraising phase, which lasts 12–18 months. This implies that the initial investment to launch a VC firm might need to be at least $1–1.5 million to cover the fundraising period. If raising $30 million is not feasible, more investment will be necessary.

In upcoming articles, I’ll explore ways to optimize expenses to find a more accessible entry point into the VC firm business.

Previous in MondayVC Newsletter: Edition 7, VC Team Design.