The Management Fee Mismatch
Studios need 10-15% of capital for ops, but standard funds charge 2-2.5%. The cash-flow crisis hits in year two. Fix: dual-entity structures or portfolio service revenue.
The math of a standard 2-2.5% management fee doesn't cover the operating cost of a studio that genuinely builds companies. Studios need closer to 10-15% of capital for operations — shared services, in-house operators, build infrastructure — but charging that scares away LPs trained on the venture model.
The cash-flow crisis hits in year two: the studio can't fund the level of build it promised, cuts corners on support quality, and the early ventures suffer. By year three, the fund is in survival mode instead of scale mode.
Two clean fixes: dual-entity structures (studio ops funded separately from the venture fund), or service revenue from portfolio companies that offsets shared-service costs without taking it from the fund itself.