Complete deep dive into VC fund structure, economics, and operations. Learn how a ₹100 crore fund works: management fees, carry, return expectations by stage, investment thesis, deal flow strategy, and selection criteria with real 2024-2025 data.
Table of Contents
The ₹100 Crore Fund: Basic Structure
A ₹100 crore ($12 million USD) VC fund is a medium-sized early-stage fund. Let’s break down the economics:
Capital Breakdown for a ₹100 Crore Fund
| Component | Amount | Purpose |
|---|---|---|
| Fund Size | ₹100 crore | Total capital from LPs (limited partners) |
| Investment Period | 5 years | Years 1-5: Active investment phase |
| Hold Period | 5-10 years | Years 5-10: Portfolio management, exits |
| Annual Management Fee (2%) | ₹2 crore/year | Year 1-5 active investment period |
| Total Management Fees (5 years) | ₹10 crore | Goes to salaries, admin, office costs |
| Net Capital Deployed | ₹90 crore | ₹100Cr – ₹10Cr in fees = actual investments |
| Carry (20% on profits) | 20% of returns above hurdle | Fund managers keep 20% of gains |
Critical Insight: A ₹100 crore fund only actually deploys ₹90 crore over 5 years because ₹10 crore goes to management fees. To achieve a 5x return for LPs, the fund must generate 5.5x+ on deployed capital (to account for fees). This is why deal quality matters so much.
Fund Team Structure (Typical)
A ₹100 crore fund typically has:
- General Partners (GPs): 1-2 (managing partners who run the fund)
- Investment Partners: 2-3 (sourcing, due diligence, portfolio management)
- Associate/Analyst: 1-2 (research, ops, deal analysis)
- Operations Manager: 1 (compliance, admin, fund accounting)
- Total team: 5-9 people
Salaries (approximate): GPs ₹1-2 crore/year each, Partners ₹50L-₹1 crore, others ₹20-40L. Total annual salary bill: ₹8-15 crore including benefits and overhead.
The 2-20 Fee Structure Explained
The “2-20” is the standard VC fee structure globally. But it’s being challenged in India. Here’s how it works:
What is “2 and 20”?
The 2%: Annual Management Fee
How it works: The fund charges LPs 2% of committed capital every year for 5 years (the active investment period).
For a ₹100 crore fund: ₹2 crore/year × 5 years = ₹10 crore total
What it covers: Partner salaries, staff, office rent, legal fees, fund admin, compliance, due diligence costs
The 20%: Carried Interest (Carry)
How it works: Fund managers keep 20% of all profits above a hurdle rate (usually 8% annual return to LPs).
Example: If a ₹100 crore fund invests and generates ₹250 crore in value (2.5x return), the profit is ₹150 crore. After paying LPs their 8% hurdle (₹8Cr), the remaining ₹142 crore is split: LPs get 80% (₹113.6Cr), GPs get 20% carry (₹28.4Cr).
Important: GPs only make carry if the fund is profitable. It aligns incentives—managers only get paid for returns they generate.
Why 2-20 is Under Pressure in India
The Problem: For a ₹100 crore fund lasting 10 years, 2% annual fees add up to 20% of total capital. Combined with carry, this means:
If a fund needs 5x return to satisfy LPs after fees, deployed capital must return 5.5x or more. This is incredibly hard.
LPs are pushing back: Especially family offices and HNIs in India who can get 12-15% returns from index funds like NIFTY. They’re demanding lower management fees.
New models emerging:
- 1-20 (1% management, 20% carry) – growing in India
- 1-10 (1% management, 10% carry) – being tested by some funds
- 1 and 25 (1% management, 25% carry) – incentivizes performance over fees
- Cascade fees: 2% Year 1-3, dropping to 1.5% Year 4-5
Real Example: Artha Venture Fund (India)
Artha Venture Fund (Seed + Growth funds) has implemented:
- 1% management fee (instead of 2%)
- 10% hurdle rate (instead of 8%)
- Shares 50% of carry with team members (not just GPs)
This model is gaining traction because it aligns manager and LP interests better, and is more fair to operations/support teams.
Return Targets by Investment Stage
VC funds set different return targets depending on the stage they invest in. This is because risk and timelines vary drastically:
Return Expectations by Stage
| Stage | Target MOIC (Multiple) | Target IRR | Timeline to Exit | Why |
|---|---|---|---|---|
| Seed | 50-100x | 40%+ IRR | 10 years | Highest risk, many fail, need huge winners |
| Series A | 10-15x | 30-40% IRR | 8-10 years | High risk, longer path to exit |
| Series B-C | 5-10x | 25-30% IRR | 5-7 years | Product-market fit proven, clearer path |
| Growth/Pre-IPO | 3-5x | 15-25% IRR | 1-3 years | Low risk, proven business, near exit |
Key Insight: Seed funds need 100x winners because most startups fail. If a seed fund invests ₹10 crore across 20 companies (₹50L each), maybe 15 fail (₹0 return), 4 return 2-5x (₹50L-₹1Cr each), 1 becomes the “unicorn” (₹25-50 crore). The one winner must pay for all the failures and generate the overall 30%+ IRR.
Real Performance Data (2025)
| Percentile | Median IRR (2017 Vintage) | What This Means |
|---|---|---|
| Bottom 25% | 5% IRR | Underperformers (worse than index) |
| Median (50%) | 11.5% IRR | Average fund (matches market) |
| Top 75% | 18.7% IRR | Good performers |
| Top 10% | 28.3% IRR | Elite funds (exceptional) |
Translation: Only 10% of VC funds achieve 25%+ IRR. Most funds (50%) are barely beating index returns (11.5% vs 12-15% stock market returns).
What is an Investment Thesis?
An investment thesis is a VC fund’s POV on: what markets/problems are interesting, what stage makes sense, what founders they back, what ROI they expect. It’s their North Star.
Example Investment Theses
| Fund Type | Example Thesis | What They Look For |
|---|---|---|
| B2B SaaS Fund | “Enterprise software for under-penetrated SME segments in India” | Product-led growth startups, ₹1-5 crore ARR, 10+ person teams |
| Deeptech Fund | “Physics-based startups solving trillion-dollar problems” | PhD founders, 5+ year development, capital-intensive, high risk |
| Fintech Fund | “Democratizing financial services in Southeast Asia” | Compliance expertise, regulatory clarity, unit economics clear |
| Consumer Fund | “D2C brands with 50%+ margins targeting Gen Z” | Social media fluent founders, cohort economics, repeat purchase |
Why Thesis Matters
- Filters Deal Flow: Funds reject 70-80% of inbound deals in minutes because they don’t fit thesis
- Builds Expertise: Focused on one sector means team knows dynamics, competitors, regulatory issues
- Better Returns: Funds that stick to thesis outperform generalists. Focused knowledge = better investments
- Portfolio Synergy: Multiple investments in same sector can create network effects and cross-benefits
Deal Flow: Volume and Quality
Deal flow is the pipeline of potential investments. Quality matter more than quantity.
Typical Deal Flow Metrics
A healthy VC fund receives:
- 100-200 pitches per month (for seed/early-stage funds)
- Of these, 5-10% are reviewed seriously
- Of those, 20-30% go to partner meeting
- Of partner meetings, 10-20% get term sheets
- Final result: 1-2 investments per month (12-24 per year)
Timeline: From first pitch to term sheet: 8-12 weeks average for seed-stage deals
Where Deal Flow Comes From
| Source | % of Deals | Quality |
|---|---|---|
| Founder Referrals | 30-40% | Highest (warm intros from trusted sources) |
| Angel Investors/Scouts | 20-30% | High (early believers filter it) |
| Portfolio Company Referrals | 15-20% | Very high (vetted by existing companies) |
| Accelerators | 10-15% | Medium (batch model, mixed quality) |
| Inbound/Cold Outreach | 10-15% | Low (high volume, low quality) |
| Conferences/Events | 5-10% | Low-Medium (hit or miss) |
Pro Tip for Founders: Get a warm introduction from someone the VC knows. Cold emails have <2% chance of getting reviewed. Warm intros: >50% get meetings.
The 3 Core Selection Criteria
When VCs evaluate a startup, they use 3 primary filters (fast-screen rejects 70-80% of deals):
Criterion #1: Fit with Fund’s Investment Thesis
Questions VCs Ask:
- Does this startup match our sector/stage focus?
- Is the round size right for us? (e.g., a fund looking for ₹10-50 crore Series B won’t invest ₹50L seed)
- Are we geographically interested? (Asia, India, specific city?)
- Is the market timing right?
Result: 70-80% of deals filtered out here. If you don’t fit their thesis, instant pass.
Criterion #2: Team Quality & Fit with Execution Challenges
VCs Focus on:
- Founder Pedigree: Previous exits? Startup experience? Domain expertise?
- Team Completeness: Founding team balanced? (Tech + biz + ops?)
- Execution Track Record: Have they shipped products? Hit milestones?
- Founder-Market Fit: Do they deeply understand the problem they’re solving?
- Coachability: Are they open to feedback or stubborn?
Reality: Some seed investors look ONLY at team, not product. They bet on founders, not ideas.
Criterion #3: Market Size & Opportunity
The Math: For a fund to generate 20-30% IRR with 1-2 exits, at least ONE portfolio company must become ₹1000+ crore revenue business.
This means the TAM (Total Addressable Market) must be at least ₹10,000+ crore. Smaller markets = lower ceiling = lower potential returns.
What They Evaluate:
- TAM: How big could this market be?
- Serviceable Addressable Market (SAM): What portion can the company realistically serve?
- Market Timing: Is the market ready NOW or 5 years from now?
- Competition: Is there 50 competitors or 2?
- Defensibility: Once big, can competitors easily copy?
Portfolio Construction & Risk Management
VCs manage risk through portfolio diversification and follow-on investing strategy.
Typical Portfolio Allocation (₹100 Crore Fund)
| Strategy | Number of Investments | Investment Size | Total Deployed |
|---|---|---|---|
| Initial Checks (Seed Cheques) | 20-30 companies | ₹1-2.5 crore each | ₹50 crore |
| Follow-on Investments (Series A, B) | 10-15 best performers | ₹2-5 crore each | ₹30 crore |
| Reserve for Pro-rata | Optional participation | Not specified yet | ₹10 crore |
| Total Deployed | Portfolio of 20-30 | Varied | ₹90 crore |
The “Power Law” of VC Returns
Critical Truth: In VC investing, 1-2 companies generate 70%+ of all returns. The rest provide small or zero returns.
Typical VC Portfolio Outcome:
- 50% of investments: Lose ₹0 (startup dies, investors lose capital)
- 30% of investments: Return 1-2x (modest gains, employees cash out)
- 15% of investments: Return 5-20x (good outcomes, successful exits)
- 5% of investments: Return 50x-1000x (1-2 unicorns that save the fund)
This is why VCs can afford to lose on 50% of bets. As long as 1-2 massive winners exist, the fund meets IRR targets.
Alternative Fee Models in India (Emerging)
India’s VC landscape is evolving. LPs are pushing for alternative fee structures:
Models Gaining Traction
| Model | Management Fee | Carry | Pros/Cons |
|---|---|---|---|
| 1-20 (Emerging) | 1% annually | 20% | Lower fees, better for LPs. Emerging favorite in India. |
| 1-25 (Performance Focus) | 1% annually | 25% | Incentivizes GPs to hit returns, not live on fees. |
| Cascade (1.5-2-1) | 2% Y1-3, 1.5% Y4-5, 1% Y6+ | 20% | Higher fees early (when spending high), lower later. Aligns with work. |
| 1-20 + Profit Share | 1% annually | 20%, split 50% with team | Aligns entire team with performance. Fairest model. |
Trend: Indian funds are moving away from 2-20 toward 1-20 or 1-25. This is good for LPs and aligns GP incentives better with performance.
Understanding VC Economics is the First Step
For founders: Know that VCs need 10-100x returns depending on stage. A seed fund needs you to become a ₹1000+ crore company. A Series B fund is happy with ₹100 crore. Pitch accordingly.
For LPs/future GPs: The 2-20 model is archaic in 2025. India is moving to 1-20 or 1-25 models. VCs can’t live on fees alone—they need strong returns. Only top 10% of funds hit 25%+ IRR.
The best VCs are those with aligned incentives, focused theses, strong deal flow, and ruthless selection criteria. Everything else is marketing.
Quick Summary: VC Fund Economics
1. A ₹100 crore fund deploys ₹90 crore (₹10Cr goes to fees). To achieve 5x LP return, must generate 5.5x+ on invested capital.
2. Standard 2-20 structure: 2% management fee ($2M/year for ₹100Cr fund), 20% carry on profits above 8% hurdle. Emerging India models: 1-20, 1-25, or cascade fees.
3. Return targets by stage: Seed 50-100x (40%+ IRR), Series A 10-15x (30-40% IRR), Series B-C 5-10x (25-30% IRR), Growth 3-5x (15-25% IRR).
4. Real performance: Median VC IRR 11.5%, Top 10% funds 28.3% IRR (2017 vintage). Most funds barely beat index returns.
5. Investment thesis: Filters 70-80% of deals in fast-screen. Funds bet on sector/stage, not individual companies.
6. Deal flow: 30-40% from founder referrals (best quality), 10-15% from cold outreach (worst quality). Warm intros 50% conversion vs cold 2%.
7. Selection criteria: (1) Fit with thesis, (2) Team quality + execution, (3) Market size (TAM ₹10,000+ crore required).
8. Power law: 1-2 companies generate 70%+ of returns. 50% of investments fail, 30% return 1-2x, 15% return 5-20x, 5% return 50x+.