the capital call broken down
Let’s say you are a VC and you have successfully conned rich people into plunking money in a new company no one ever heard of. The way you would collect this money is via a capital call. All the money is not called in at once but in installments. The schedule as you probably guessed, is determined by the management company (aka VC firm).
Right. From each capital call, the management company takes a good chunk of money to pay for, err, “management expenses.” This includes salaries, P.R., office supplies, rent, the works. The cool (or should I say devilish) thing is that the firm determines the percentage they need to manage the fund (aka the big pool of money). This in turn determines how much money the managing directors can get away with pocketing. And trust me, it can be a lot, from personal expense accounts that include family members to ridiculously inflated salaries…Have I mentioned that VC stands for Very Crooked?
Don’t get me wrong. There are VCs that can truly command the big ol’ bucks since they make their limited partners loads of money. An obvious example is Google, whose stock is now trading at $300. Heck, many Google employees who held company stock retired when this happened. Why are my job agencies not well connected enough to get me an interview there? Must call Andy and rip’im a new one…
The VC firm where I work doesn’t resemble a successful one in any way, shape or form. Each capital call we send out, we get less money in. Our LPs point blank refuse to shell out any more moolah. Even at the risk of legal action (which we can’t afford anyway given the half million dollar salaries of all 6 managing directors). Some will even send in, in place of the wire transfer, a cute note that reads:
“Let it be known that I, XXXXXX, will NOT be honoring my investment contract with XXXXXX given the ten years of misrepresentations, lies, miscommunications, and point blank fraudulent misuse of my funds. Should you want to pursue legal action, I’m ready. Bring it on B%$!@”