Obviously the larger the fund the bigger the cash management fee. Although the management fee is nice, the real payoff to the general partners comes through participation in the fund's profits. I leave it to you to think through some of the other implications of the institutional attributes of venture capital funds. Private Placements Through Brokerage Firms. My two clients are also talking with a Wall Street brokerage firm private placements to do a private placement to wealthy individual clients of the brokerage firm.
Brokers receive a small commission by getting their clients to buy and sell securities.
The more times this happens the larger the dollar volume of commissions to the broker. If the broker puts his client in an illiquid private placement it reduces the amount which the client can use to buy public securities on which the broker makes his normal brokerage commission. The higher commission for the private placement is to compensate the broker for giving up the opportunity to earn his regular commissions. The strategic partner investor may give higher valuations than other investors because it is more knowledgeable about the business. Sometimes it is not a valuation issue but the synergies which the strategic partner sees with its own business which makes it willing to do the deal when others won't from only a financial analysis perspective.