How the pandemic impacted terms and conditions

Different Funds looked at GP and LP terms to see how the past year has impacted operations, and found only modest changes, with management fees holding steady. Although the advisory service is seeing an increase in funds looking to originate deals across multiple stages.

A year-plus into the pandemic, and the industry has undergone disruptions in how it conducts due diligence and raises funds. But terms and conditions remain largely unchanged in the past 12 months.

That is according to Different Funds, an advisory service that last week issued a report on the 2020 State of Terms: Venture Capital Benchmark. The study, a follow-up to a similar study it conducted for 2018, found that amid the pandemic and other chaos of 2020, only modest change occurred in regard to terms and conditions.

Different Funds found that carry is unchanged, with the majority of funds continuing to set carry rates at 20 percent.

The average blended management fee is 1.9 percent, down slightly from the 2.04 percent it reported in 2018. However, the median blended fee is still exactly 2 percent and the average first year management fee is 2.25 percent. That was on par with the 2.3 percent first-year management fee rate it reported in the prior study.

Different Funds noted that it found a small but growing roster of outlier funds setting exceptionally low (or zero) management fees, usually via alternatively structured vehicles. These fees were excluded from its benchmark study.

LP minimums

Where the report found more than modest change from its previous benchmark was for the minimum LP commitment. That increased to a minimum of $1.43 million with a median of $500,000, a jump from the $395,000 and $250,000 respective figures of 2018.

For funds that differentiate minimums for individuals and institutional investors, the average individual LP minimum in 2020 was $420,000 with a median of $250,000, while the average institutional LP minimum was $1.68 million with a median of $1 million.

This rise in minimum LP commitment could reflect that the target size of funds is trending up, Different Funds said.

The study also looked at follow-on reserves and portfolio construction.

For 2020, Different Funds found an increase in funds looking to invest in new deals across multiple stages. That push to be more stage-agnostic or at least to look at investing across multiple stages is likely a result of a corresponding rise in specialist and thematic funds.