To ensure "radical alignment," solo capitalist Oren Zeev pays himself zero from management fees, reinvesting 100% back into his funds. As the largest LP in every fund and with a 30% carry, his entire economic incentive is tied to long-term value creation, not fee generation, which is highly unusual.
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To democratize venture capital, ARK created a fund that eliminates the traditional 20% carried interest (a share of profits). Instead, it charges a flat 2.75% management fee. This structure aims to give retail investors with as little as $500 direct access to premier private company cap tables without the performance fees that typically benefit fund managers disproportionately.
To maintain maximum flexibility, Oren Zeev explicitly tells his LPs his only rule is that he has "no rules." This prevents him from being boxed in by a rigid strategy, allowing him to make opportunistic investments that might otherwise contradict stated ownership targets or round structures, ultimately benefiting the fund.
By decoupling bonuses from AUM, the firm removes the incentive for managers to hoard assets for personal gain. This allows leadership to allocate capital optimally across managers based on style and portfolio needs, promoting a culture focused purely on performance.
The strength of a GP-LP relationship isn't measured by co-invest rights or fee breaks. It's demonstrated when a GP offers valuable advice or connections that improve the LP's overall portfolio, even when there's no direct financial gain for the GP. This uncompensated help is the hallmark of true partnership.
To participate in highly competitive late-stage deals, some VCs organize SPVs without management fees or carry. While not directly profitable, this helps the startup fundraise, strengthens the relationship, protects the VC's original investment, and signals access to LPs for future funds.
The explosion in the number of solo GPs and small VC funds is not primarily fueled by institutions, but by a growing pool of individual and high-net-worth capital. This new LP base will demand fund structures with better liquidity and less administrative burden.
Co-investing offers 'structural alpha.' By participating in average deals with average private equity managers but without paying management fees or carried interest, an LP's returns are mathematically lifted to a top-quartile level. This inherent advantage exists before any deal-specific underwriting.
TA's compensation structure aligns partner incentives directly with investor returns. The primary way for partners to increase their ownership (carry) is by generating realized gains—i.e., returning capital to Limited Partners. This systemically prioritizes liquidity and successful exits over simply deploying capital or marking up portfolio value on paper.
Oren Zeev argues that LPs should seek diversification across their portfolio of GPs, not within a single fund. He believes GPs should be concentrated in their best deals to maximize returns, noting that concentration limits at the fund level don't benefit LPs who are already diversified across many managers.
The legendary investor calls venture capital's business model a "scam" because VCs get paid management fees regardless of performance. He argues this structure incentivizes deploying capital even on overly risky bets, as the manager's personal downside is limited while their upside is significant.
