Mayfield Case

What characteristics differentiate Mayfield from other venture capital firms?

What differentiate Mayfield from other venture capital firms is their LP-friendly attitude, instituting budget-based management fees which have been consistently lower than Mayfield’s 2,5% cap.

Mayfield is an early-stage VC fund, often being the first institutional money to enter a company. This strategy along with very good past returns has earned them a spot as one of the top-tier VC firms.

A part of Mayfield success can be traced to their hands-on approach, adding operational support for its companies, supplying them with both a recruiting partner and a marketing partner.

Why has Mayfield proposed the fee-for-clawback exchange?

The reason that Mayfield proposed the fee-for-clawback exchange is rooted in the fact that after each investment was liquidated, the LP´s got back their initial capital and the capital gains where split between the LP´s and GP´s immediately. Instead of waiting until all the investments in the fund had been liquidated and then paying the LP´s back their initial capital and splitting the gains.

This caused that as the rest of the investments where liquidated at a lower return than expected, the LP´s felt that the GP´s had gotten a bigger piece of the pie than they agreed upon.

Mayfield proposed the fee-for-clawback exchange on the fact that they only charged the LP´s “Budget-based” fees, which where lower than Mayfield’s 2,5% cap. Noting that the LP´s where better off financially due to the lower management fees and that´s why they should not get the clawback.

What are the financial implications of the Mayfield proposal?

How does it affect the returns to the limited and general partners? Make the calculations using the assumptions that Martin is making at the end of the case.

In these calculations we use exhibit 4.1, where we calculated the distributed profit in dollars ($).

Assumption used assumes that distributed profit is generated by 50% of the total funds sizes . These investments are liquidated and the carry is split with a 70/30 assumption.

The base for the carry of the profits of the investments liquidated is calculated by adding the loss of the non-performing portion to the profits of the fund, shown in the table above.

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