Management Fee Clause

Why it matters

Management and monitoring fees are a private-equity construct. They don't belong in venture. The fee is typically 1-2% of invested capital per year, paid by the company directly to the firm or a related entity. On a $10M round at a 2% fee, that's $200k a year — real cash, real runway, going to the firm that's already going to make a multiple of the fund on the equity. PE shops sometimes import these clauses into late-stage venture deals and crossover rounds. They are extractive and unacceptable at any venture stage.

How to negotiate

Refuse outright. There is no version of this that is fair in primary venture financing. If a firm insists, treat it as a signal that they are running a PE-style playbook — and then look at every other clause in the term sheet through that lens. Walk if it stays in.

Example language

How this clause typically appears in a term sheet. Read it carefully — predatory language is often buried in routine paragraphs.

The Company shall pay to the Investors or their designee an annual management fee equal to two percent (2%) of the aggregate purchase price for the Series Preferred, payable quarterly in arrears.