Is Angel List’s new fund more expensive or cheaper than traditional venture capital funds?

Startup and investor marketplace Angel List launched a fund last week, which allows people to back investors and the companies they choose. The new approach, coupled with their slightly different fee structure, has set the VC industry talking.

 

The standard fund charges a 2% fee and 30% carry for investors, compared to Angel List’s $25 million Maiden Lane fund which charges no fees and a 30% carry.

 

Melbourne-based Starfish Ventures investment director Tony Glenning told StartupSmart the Angel List fee structure will return less in successful investments than the classic venture model.

 

Angel List chief operations officer Kevin Laws told StartupSmart they had chosen the new model in the interests of efficiency, but also argues that a “0%/30% fund is always better for investors than a 2%/20% fund, even in big upside scenarios”.

 

Laws says they wanted to launch a fund where more money goes directly to the startup.

 

“A ‘typical’ fund that invests $100 would pay itself 2% in fees every year for 10 years, or $20. That means only $80 would be invested in startups,” Laws says. “The startup gets more investment, the investors get more returns, and the Angels get more carry all because more of the money goes directly to work in the startup rather than getting eaten in fees.”

 

The Maiden Lane fund will retain 10% of the 30% carry, resulting in a 20% carry for investors.

 

TechCrunch has declared the AngelList model as “slightly more competitive for limited partners than the traditional VC firm”.

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