Never underprice yourself

Every venture investor has had the same terrible, intrusive thought at least once in their career: “Maybe I should lower my fees to be more competitive…”

This is one of the worst things that any fund manager can do to their business and their reputation.

Michael Kim from Cendana Capital has explained it perfectly:

Standard venture fund economics follow a 2&20 model.
- 2% yearly management fee
- 20% carried interest

All of the top-quartile funds charge this fee. Some funds even charge 3&30!

BUT…

No top-quartile fund would ever charge below 2&20.

If you’re a new fund manager, you don’t have the track record to prove that you will become a top-quartile venture investor.

However, if you under-price your fees, it’s a negative signal to potential LPs.

Reduced fees are a signal that you’re an under-performer, and not worth investing in no matter the price.

It’s called Negative Price Signaling and there’s some pretty solid science behind it.

In fact, according to a study from 2008 titled, "The Effect of Price on Brand Choice: A Choice Modeling Approach", price has a significant impact on perceived quality, ESPECIALLY for less familiar brands.

Are you a talented investor with a new fund?

Price accordingly.

Because if you don’t believe in yourself, no one will.