[eldavido]

A perspective I've found helpful is to think about a fund as a business, which it is.

Let's assume a hypothetical case of running a $100 million tech investment fund. The first 10-11% of return should go straight to investors (not the manager), for the simple reason that 7-8% is available in the stock market, and unlike the public markets, tech funds are illiquid--unlike investing in SPY, you can't wake up one day and trade out of your interest in a fund like this. You're locked in. That shifts the return expectation upward.

So assuming the manager's cost of equity (what investors demand) is around 10-11%, maybe a great manager can get the return number to 15-16%. That's a pretty good return on the fund but it's only $5 million in absolute gross returns (10->15% on $100 million). Considering the manager might get only 10-20% of this (the rest goes to investors), it's just a lot of work to earn $1 million in performance-based comp, over 2-3 years of active work and perhaps a decade of full fund life. These things are also typically run by teams (several partners) so the returns are split.

The point is that $100 million funds just aren't making their managers rich. The two outcomes of this, which you see over and over, are (1) for managers to try to manage much bigger funds ($500+ million) or (2) big management fees of 2%/year or more, which significantly erode returns.

The net result being, VC is a very hard business that almost always delivers substandard returns to its investors, after long lock-ins with very little liquidity. It's very tough and I'm not surprised to see these guys shutting down.