Fees and costs
What the cost of participating in a deal is made of, where the exact rates are written down, and the four questions to ask of any structure.
The short answer
The exact fees for a deal are set out in that SPV’s documents, which you read and sign before any money moves. This article explains what the lines are and how to read them; it does not quote rates, because they are not the same across deals. What is consistent is the shape: a cost of participating, a cost of holding, a share of the upside, and the vehicle’s own running expenses.
Four lines, and what each is for
On entry A one-off charge at subscription, where a deal has one. It covers arranging the allocation and forming the vehicle. On holding A periodic management fee while the position is held, for administering the SPV, maintaining the reporting and handling what the company sends to its shareholders. On the upside A share of the gain, taken only when the position is realised and typically only above a threshold. Nothing is taken from a position that does not gain. The vehicle’s own costs Formation, administration, audit and similar expenses of the SPV itself, borne by the vehicle.
Four questions to ask of any structure, here or anywhere
What is the base? A fee on the amount you subscribed and a fee on the current value of the position behave very differently over several years. When is it taken? Deducted from your subscription up front, charged annually, or settled out of proceeds at the end — each changes what is actually at work in the investment. What is the threshold on the performance share, and is it measured on the whole position or deal by deal? Do the vehicle’s own expenses sit on top, and is there a cap on them?
Three things that reduce your return and are charged by nobody
Dilution. If the company raises again, the vehicle’s stake becomes a smaller share of a larger company. Normal, and not a cost anyone collected. Preferences above you. Shares issued in later rounds can rank ahead of the ones the vehicle holds when the company is sold. In a disappointing exit that ranking, not the fee schedule, decides the outcome. Time. Capital held in one position for five years has an opportunity cost no fee table shows, and it is usually the largest number in the whole calculation.
What the alternatives cost
A single-deal vehicle carries costs that buying shares directly does not. If you can find a seller yourself, obtain the company’s consent, clear its right of first refusal and handle the transfer, that route is cheaper — it is also closed to almost everyone, which is the actual comparison. A fund charges on a portfolio you have not seen yet. What pre-IPO investing actually is sets the four routes side by side.