Almost nobody buys stock in a late-stage private company directly. Access comes through a vehicle: a special-purpose fund, a feeder, sometimes a fund that invests in another fund. Each layer charges for the privilege. The company can do everything right and the holder can still end up with an unremarkable result.
So before we ask whether a company is worth owning, we ask what owning it through this particular wrapper will actually cost.
Illustration. Company value triples over five years. Light: 5% upfront, 0.5% annual, 10% carry. Typical: 6.5%, 0.5%, 15%. Heavy: 6%, 2%, 20%. Layered: 16% upfront, 2% annual, 20% carry. Annual fees are charged on the commitment and reduce invested capital; carry is charged on profit above the commitment. Real terms vary and are often more complex.
Where the return goes
Upfront fees come out before a dollar reaches the company, so they compound against you for the whole hold. Annual fees reduce what is actually invested. Carry takes a share of the gain. Stack a second vehicle on top, with its own set, and a tripling of the company becomes roughly a doubling for the holder. Nothing about the company changed.
Same assumptions as the layered case in Exhibit 1.
The questions we ask first
- iWhat exactly does the vehicle own: shares, units in another vehicle, or a forward contract?
- iiIs this a primary allocation or a secondary purchase, and at what price per share?
- iiiWhat is the full fee schedule, including expenses, and is carry charged only after capital is returned?
- ivHow many layers sit between us and the cap table?
- vWho is the manager, how long have they existed, and do their filings reconcile?
- viWhat happens at a listing: how and when are shares distributed, and to which custodians?
Clean sponsors answer these without theater. When they cannot, the answer is already in.
We have passed on access to companies we would happily own, because the path to owning them was too expensive or too opaque. That is not a judgment on the company. It is a judgment on the wrapper, and the wrapper is part of the deal.
This piece reflects the office's views at the date shown and is provided for information only. It is not investment advice or an offer to buy or sell any security. Figures are drawn from the public sources listed; illustrations are simplified and are not a forecast.
