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If you're a prospective angel investor checking out the scene, you've probably talked to a few small venture funds (a.k.a. "micro VCs" or "emerging fund managers") who have bandied about the term "2 and 20" when talking about their fee structures. Here's what that means.
“2 and 20” is basically two different fees layered together: an annual management fee (the “2%”) and a profit share called carried interest (the “20%”).
For context, you'll also need to know that In a venture fund, the GP (general partner) is the managing partner that runs the fund and carries the legal and fiduciary responsibility for it. The GP is effectively the “owner-operator” of the fund, while the investors are limited partners (LPs).
The management fee is usually around 2% per year, charged on the fund’s committed capital during the investment period, then often stepping down later. For example, a $100M fund might charge 2% on commitments for the first 5 years (about $2M per year), then gradually reduce the percentage as the fund moves into harvest mode and is mainly managing existing positions. This management fee goes to paying salaries, rent, travel, legal and accounting expenses, etc., for the operations of the fund.
The 20% is the "carry": the GP’s share of profits after returning capital to LPs. This represents the upside for the people who do all the due diligence on startups, sit on the boards of investees, and so forth. If a $100M fund returns $300M gross, first the $100M of contributed capital goes back to LPs, then the remaining $200M profit is split 80/20, so LPs receive $160M of profit and the GPs receive $40M as carry.
Fee structures can include tweaks such as step‑down management fees, higher carry (e.g., 25–30%) for top managers, or performance hurdles before carry is paid. Many funds deviate from the textbook 2%: smaller or very large funds commonly charge between about 1.5% and 2.5% management fees, while keeping performance carry near 20%. Some angel groups operate their own venture funds - which you have to be a dues paying member to participate in - but their fees can be as low as 0.5% management fee and zero carry. Membership dues can run from a few thousand dollars a year for a group like the Alliance of Angels here in Seattle, to a few tens of thousands for some very exclusive groups of high rollers.
