When I hear about someone raising a fund under $10 million, my heart genuinely aches—not because it’s not an accomplishment, but because I know the road ahead will be brutal. The math doesn’t math, the grind is relentless, and success in venture capital is anything but immediate. Small funds often set their managers up for a long, difficult journey, and here’s why.
Management Fees: Not Enough to Thrive
Management fees are the lifeblood of any fund. At 2%, a $10 million fund generates $200,000 a year to cover everything—your salary, office costs, compliance, travel, deal sourcing, and more. A $5 million fund? You’re looking at $100,000 annually.
Sure, that’s a decent salary, but it’s far from what most people imagine when they think of venture capital. Forget the Birkins, Jaguars, or family foundations. At this level, you’re not thriving—you’re barely surviving. You’re juggling every role, stretching every dollar, and often sacrificing the resources you need to support your founders properly.
The Long Game of Returns
Venture capital is a long game. Returns take 7 to 10 years, and that’s if your investments perform well. Meanwhile, you’re grinding every day to find deals, support your portfolio, and manage the fund’s operations, all on a razor-thin budget. For small funds, the stakes are impossibly high, and the room for error is almost nonexistent.
When the Math Starts to Work: $20 Million
At $20 million, the numbers begin to make sense.
Management Fees: $400,000 annually.
Team Support: You can afford to hire one or two people, maybe an associate or a part-time operations manager.
Salary: You might pay yourself $120,000 to $150,000.
Resources: There’s enough left for basics like compliance tools, travel, and deal flow systems.
It’s still lean, but it’s functional. You’re no longer operating on fumes, but you’re far from rolling in cash.
The Sweet Spot: $50 Million
At $50 million, you’re finally in a sustainable position.
Management Fees: $1 million annually.
Team Support: You can build a team of 3-4 people, including yourself, associates, and operational support.
Competitive Salaries: As managing partner, you might earn $200,000 to $300,000, while associates take home $80,000 to $120,000.
Infrastructure: You can invest in compliance, travel, deal flow tools, and founder support services without constant financial stress.
This is where you’re no longer just surviving—you’re building something that can scale and thrive.
Layering Funds: Where It Gets Interesting
The game changes dramatically when you start layering funds. Managing multiple funds compounds your management fees, providing stability and operational resources.
For example, if you’re managing a $50 million fund and raise a $75 million follow-on, you now have $125 million in assets under management. That’s $2.5 million a year in fees.
This is why fund managers often raise back-to-back funds. It’s not just about deploying capital—it’s about building financial stability, scaling your team, and staying ahead of returns. With layered funds, you can focus on strategic growth instead of day-to-day survival.
The Grind: Do the Work
Here’s the truth: managing a small fund is a lonely, exhausting grind. It’s not glamorous, and it’s definitely not a shortcut to wealth. But if you can get through the gauntlet, it’s worth it.
Find Impossible-to-Find Deals: Your job is to uncover the overlooked founders and companies that others miss.
Make Founder Success Your Priority: The better your founders do, the better your fund performs. Be their biggest advocate.
Stay Focused: If you’re spending all your time networking with other VCs, you’re missing the point. The goal isn’t to look like a great VC—it’s to be one.
Smarter Ways to Start
If you’re thinking about launching a fund, consider these tips:
Think Bigger: Aim for at least $20 million, or better yet, $50 million. That’s where the math starts to work.
Partner Up: Join forces with an established platform or co-manage a fund to build your track record.
Explore Alternatives: Syndicates, SPVs, or revenue-based financing might be smarter options for starting small.
The Bottom Line
Raising a fund under $10 million might sound scrappy and bold, but it often leads to more headaches than wins. The math is tight, the work is relentless, and the returns take years to materialize.
But if you’re willing to grind, put founders first, and stay focused on long-term success, you can make it. Just don’t fool yourself into thinking it’ll be easy—or glamorous. This is a marathon, not a sprint. And the ones who succeed are the ones who remember it’s not about the spotlight—it’s about building something that lasts. Candice Matthews Brackeen
Lightship Foundation
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