A management company is a business entity, typically structured as a limited liability company (LLC), established by the general partners (GPs) of a venture firm to oversee its operational functions across various funds. Its primary responsibilities include:
- Collecting management fees from limited partners (LPs)
- Managing employment agreements and associated expenses
- Covering operational costs such as travel and services
- Entering into necessary business agreements
- Handling regulatory filings.
The management company usually owns the firm's brand and intellectual property, serving as a liability shield for fund managers.
Management companies can be single-member or multi-member entities. Single-member management companies, often chosen by new GPs, simplify formation and reduce expenses. In contrast, multi-member management companies, preferred by more experienced GPs or those managing larger funds, require clear agreements on partner responsibilities and compensation to prevent future disputes. The choice between these structures significantly impacts the firm's operations and long-term strategy.
Ownership in the management company is valuable to partners as it entitles them to management fees, separate from the carried interest earned from successful investments. These fees are allocated based on the management company's operating agreement. As firms grow and add partners, ownership structures may evolve, with some firms reserving ownership for senior partners or setting milestones for junior partners to attain ownership stakes. This structure ensures that day-to-day operations are professionally managed, allowing GPs to focus on strategic investment decisions.
For more information, see our article on the AngelList Venture Education Center, “The Basics of Venture Capital Management Companies.”