Paige Finn DohertyFounding Partner, Behind Genius · Founding Partner at Behind Genius Ventures

how money flows through a venture firm #venturecapital #lajolla

22 Mar 2023 · 1 min

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In this short video, the speaker walks through a simplified diagram of the financial flows within a venture capital firm. Investors (limited partners) make quarterly capital calls into two separate funds—Fund One and Fund Two. Each fund uses the capital to cover legal fees, fund administration, taxes, and to make investments in portfolio companies. Additionally, each fund pays a quarterly management fee to a separate management company. The management company then disburses that fee to cover the partners’ compensation (the speaker and his co‑founder Josh), payroll, office rent, and software tools. Fund Two currently has 32 limited partners. The speaker notes that this financing structure is unusual compared to typical operating companies but finds it interesting.

Chapters

Running a venture firm and managing finances is like really wacky and different from other companies. So I wanted to run through kind of like what a one-on-one diagram of it looks like. Big diagram. So investors who pay quarterly cap calls into Fund One. Fund One pays for legal, fund admin, taxes, and of course investments. But Fund One pays for quarterly fees to the management company, which pays my myself and Josh, my partner in Fund 1, and software expenses. In Fund 2, 32 LPs so far, quarterly cap calls, pay into Fund 2. Fund 2 pays for legal, fund admin, taxes, and investments. Um, and then Fund 2 pays quarterly fees to the management company, which pays for me, payroll, office, software. Let me know if this is helpful. It's kind of random, I know. It's like not super usual to like run a venture firm, but I think the financing side of it's really interesting.