Management fee

Definition

The recurring fee an investor-backed buyer draws for running things.

Why It Matters

In a funded search it is the salary the backers pay while you look, and in a sponsor deal it is an ongoing charge to the acquired company for oversight. Either way it is negotiated and it is contentious, because a fee taken from the business is earnings those same investors are being asked to value. Read it beside the carry rather than on its own: a generous fee with a thin profit share pays you while nothing is working, and a thin fee with a real share pays only when the deal does.

In numbers: A $500,000 search fund paying a $120,000 salary is spending 24% of the raise every year, which is why backers price a search window in months rather than in years.