VC & PE Glossary
What Is Fee Waiver?
Updated
Definition
A fee waiver is an agreement by a fund manager to forgive or reduce management fees—often offsetting fees against GP co-invest or carry—to align economics with LPs or support fundraising.
Useful for: Founders, Investors
A fee waiver is a contractual reduction or elimination of management fees that would otherwise be charged to the fund or its limited partners, typically documented in the LPA or side letters.
How it works
Venture funds commonly charge ~2% annually on committed or invested capital during the investment period. GPs may waive fees for specific LPs (strategic anchors), for all LPs in a first-time fund to ease fundraising, or offset fees dollar-for-dollar against GP co-invest commitments. Some waivers step down after the investment period or tie to deployment milestones.
Waivers differ from partnership expenses passthrough—those remain. They also differ from fee discounts via early-closing incentives. Accounting treats waived fees as GP economic contribution, sometimes enhancing carry alignment narratives in LP meetings.
Excessive waivers without other revenue can strain operating budgets—salaries, travel, and legal costs still land on the management company.
Why it matters
- Founders: Indirect effect only—under-resourced GPs struggling after broad waivers may slow support; well-capitalized platforms waive tactically without cutting service.
- Investors: Compare net fee load across vintages; side-letter waivers create unequal economics within the same fund.
Common mistake
LPs assuming permanent waivers without reading sunset clauses. Many revert to full fee after fund III or when commitments exceed thresholds.
Related ideas
See partnership expenses, management fee, GP co-invest, and side letter.
Related terms
- Carried Interest Tax — Carried interest tax refers to how a GP's profit share is taxed — historically often as long-term capital gains if holding-period rules are met — subject to legislative changes that treat some carry as ordinary income.
- Partnership Expenses — Partnership expenses are the operating costs of running a VC or PE fund partnership—legal, accounting, admin, and sometimes travel—often paid from committed capital per the limited partnership agreement.
Common questions
Short answers for founders, LPs, and operators