Brian Nichols is the co-founder of Angel Squad, a community where you’ll learn how to angel invest and get a chance to invest as little as $1k into Hustle Fund's top performing early-stage startups

You're ready to write your first angel check, and someone starts talking about carry, management fees, and SPV structures. If your eyes are glazing over, you're not alone. These financial terms are deliberately opaque because people in venture capital have historically benefited from investors not understanding what they're paying for.

Let's change that. We'll break down exactly what these terms mean, how they impact your returns, and what constitutes fair economics versus what's extractive.

Management Fees: The Annual Cost of Doing Business

Management fees are the percentage of committed capital that fund managers take annually to cover operating expenses. The standard venture capital model is 2% over a 10-year fund lifespan.

If you commit $100,000 to a fund, you'll pay $2,000 per year for 10 years—$20,000 total. That means only $80,000 actually gets deployed into startups. If the fund returns 2x ($200,000), you're returning $160,000 on your $100,000 commitment after fees come out.

For a $100 million fund, 2% generates $2 million annually for salaries, overhead, and operations. For a $10 million micro-fund, that's just $200,000 per year—split across multiple GPs, that's roughly $65,000 each before overhead. This is why micro-fund managers make very little salary and depend on carry.

Angel groups typically don't charge annual management fees. Angel Squad charges membership fees that cover program operations, but when you write a $5,000 check into a startup, the full amount (minus SPV setup costs) goes into the company.

Carry: The Performance Fee That Aligns Incentives

Carry (short for carried interest) represents the percentage of profits that fund managers or syndicate leads receive when investments perform well. The standard in venture capital is 20%, though this varies.

Let's work through the math. Say a fund raises $10 million from LPs and eventually returns $30 million. First, the fund returns the original $10 million to LPs to make them whole. The remaining $20 million is profit, which gets split 80/20. LPs receive $16 million and the GPs receive $4 million as carry.

From the LP perspective, they put in $10 million (plus $2 million in management fees over 10 years for a true cost of $12 million) and received $26 million back. That's a 2.17x net return, even though the fund returned 3x gross.

Carry aligns incentives between investors and managers. The managers only make significant money when the fund performs well. If a fund only returns 1x or 1.5x, there's little or no carry because most capital is just getting returned to make LPs whole.

Elizabeth Yin has been transparent about how challenging these economics are for micro-fund managers. As she's explained when discussing fund economics, even a 10x return on a $10 million fund generates "just" $600,000 per year per GP over 10 years. For context, senior people at major tech companies often make similar amounts annually through salary and bonuses without the risk of running a fund.

Syndicates also use carry structures, typically 15-20%. When a syndicate lead sources a deal, negotiates terms, and coordinates investors, they receive carry on any profits. If the startup exits for a gain, the syndicate lead takes their percentage before distributing proceeds to syndicate members.

Angel Squad's structure is unusual because members invest directly through SPVs without a syndicate lead taking carry. The SPV setup and administration fees go to AngelList for managing the paperwork, but there's no additional carry layer going to Angel Squad. Members invest at the same terms as Hustle Fund itself.

SPVs: The Vehicle That Makes Small Checks Possible

A Special Purpose Vehicle (SPV) is a legal entity created for a single investment. Instead of 50 individual angels on a startup's cap table, those investors combine capital into an SPV that appears as one line item.

SPVs solve cap table management for founders. Imagine raising $500,000 from 100 angels writing $5,000 checks each. You'd spend your entire life managing communications. With an SPV, you have one entity to manage.

From the investor side, SPVs make smaller checks viable. You can invest $1,000 in a deal that requires $500,000 total because your check combines with others. Setup and administration costs typically include a one-time fee ($1,000-5,000) plus annual admin fees.

Capital Calls: When You Actually Send Money

Most people think when you "commit" to a fund, you write a check immediately. That's not how it works. Funds use capital calls—they ask you to send money only when needed to invest.

If you commit $100,000, you might get a capital call for $10,000 in month three for the first startup, another $15,000 in month six, and so on over approximately three years. Your money isn't sitting idle in the fund's bank account. It stays invested elsewhere until the capital call comes.

Angel Squad members don't deal with capital calls because they invest deal-by-deal through SPVs. When you decide to invest in a specific startup, you wire your capital at that time.

Preference Stack: What Gets Paid Back First

The preference stack determines who gets paid in what order when a company exits. Investors typically receive preferred shares with liquidation preferences, meaning they get paid back their investment before common shareholders (founders and employees) see proceeds.

If a company raises $10 million at $40 million post-money and exits for $30 million, investors get their $10 million back first. The remaining $20 million splits among all shareholders based on ownership percentage.

Multiple rounds with 2x or 3x liquidation preferences compound this effect. A company raising multiple rounds can need a very large exit before common shareholders see anything. Shiyan Koh's operational experience at NerdWallet gives her insight into how these capital dynamics determine whether pivoting to profitability is even viable.

What You're Actually Paying For

When you evaluate angel investing opportunities, add up the total cost:

• Angel groups: Membership fees + SPV setup and admin costs
• Syndicates: SPV costs + carry (15-20% of profits)
• VC funds: Management fees (2% annually) + carry (20% of profits)

The structure impacts your net returns significantly. A 3x gross return in a fund with 2 and 20 economics might net you 2.2x after fees. The same 3x through an angel group with minimal fees might net you 2.7x or more.

Understanding these terms isn't just financial sophistication—it's knowing whether you're getting a fair deal. The venture capital industry has historically relied on investors not asking questions about fees. The more transparent these structures become, the better the economics get for investors.

Angel Squad's model of transparent, low-cost access to quality deal flow represents where the industry is heading. When you invest alongside Hustle Fund through Angel Squad, you're not paying layers of fees to intermediaries.