As the summer of 1999 began, Julie Robins, the chief investment officer of the Angel Foundation, was considering whether to invest in Accel Partners’latest venture capital fund – Accel Partners VII. Accel was seeking to raise $500 million. The Angel Foundation had been a limited partner (investor) in Accel’s previous three funds – Accel Partners IV, V, and VI. Those funds had generated returns well above those typical for venture capital funds. In fact, the net returns to limited partners on Accel Partners IV and V were running above 100% per year. Exhibit 1 provides a recent record of historical returns for venture capital funds by vintage year.
While 100% plus returns were obviously spectacular, Julie was concerned that Accel had decided to raise the fees it would charge its limited partners. In its previous fund, Accel had charged a management fee of 2.5% and a carried interest (or profit share) of 25%. This already exceeded the industry standard of 2.5% and 20%. In Accel Partners VII, Accel proposed to raise the carried interest to 30% of profits. James W. Breyer, Accel’s managing partner, argued that:
“the higher profit share would help it retain and attract new talent. We have the same investment team that has been investing the last three Accel funds, and at the same time, we have greatly strengthened the team with new additions ... ”2
At a 30% carry, Accel would join a select group of private equity firms that included Bain Capital, Kleiner, Perkins, Caulfied & Byers, and, under some circumstances, Benchmark Capital.

Management fees are used to pay for the ongoing operating expenses of the partnership. . The fees are typically payable quarterly in advance. The “typical” arrangement for management fees is for a fund to charge an annual fee of 1.5% to 2.5% of total committed capital. Less frequently, management fees are calculated based on invested