How to Raise a VC Fund in Australia - Part II (Structure, Carry & the Hidden Costs)
Everything I wish I knew before I signed a trust deed.
A 3-part instruction manual for first-time fund managers.
Before I get into structure, a quick word on the operational layer.
I’ve been working with Reuben AI as I think through fund admin and LP reporting, and it’s the kind of infrastructure I wish had existed when I was figuring this out. More on it below.
👋 This is Part 2 of a 3-part series on raising and running a VC fund in Australia.
✅ Want the full checklist of every step across all three parts?
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Disclaimer: this is not financial or legal advice. I don’t hold an AFSL. Please consult a lawyer and accountant. Everything below is my experience and recollection, and I may have mis-remembered some finer points.
I thought this was the easy part.
Seven years in venture. I’d watched fund managers set up and close. I’d sat in IC meetings, seen trust deeds, and had a front-row seat to how the machine operated.
Turns out watching and doing are completely different sports.
Fund structure is where theory becomes legal reality. Inside every section below are dozens of decisions - some tiny, some fund-defining - that nobody warned me about.
One wrong call on carry allocation and you’ve built a cultural time bomb that won’t detonate for five years. One clause missed in your Trust Deed and you’re calling your lawyer at 11pm trying to unwind it.
Here’s what I learned.
⏱️ Duration: The Clock You Don’t Notice Until It’s Running
Most first-time GPs don’t think about fund duration until they’re deep in legal docs. By then, some decisions are already locked in.
The standard fund lifecycle:
Termination Date - the fund must commence winding down 10 years after the first close
Extensions - a majority of LPs can vote to extend by 1 year, exercisable twice. Theoretical max: 12 years.
Investment period - typically 4–5 years. After this, no new investments; you’re in portfolio management and follow-on mode.
First close vs final close. You can hold as many closes as you like to accept new capital. But two matter:
First close - when the clock starts and you can begin deploying
Final close - the last opportunity to accept new money. Most funds have 18 months between the two.
Grace period. After each close, you can offer a 30-day window where new investors come in on the same terms. Good for stragglers and slow signatories.
Subsequent close premium. LPs entering at a later close already know who you’ve invested in - they have information asymmetry. The standard remedy: charge a premium on their commitment to compensate earlier investors for taking the blind risk first.
The implication for fund design: know when your clocks start ticking and build your deployment model around them. Rush the first close and you’re deploying under urgency instead of discipline. Delay it unnecessarily and you’re burning the fund’s lifespan before you’ve begun.
💰 Management Fees: The Nuance Behind “2%”
I covered the headline number in Part 1 - 2% per year barely covers operational costs until you hit real scale. But the nuance matters more than the number.
VC funds don’t charge 2% per year on committed capital for the full fund life.
The standard structure:
During the investment period: 2% of committed capital
After the investment period: 2% of working capital (committed minus written-off investments)
As you write down your portfolio, your fee base shrinks. Total management fees over the life of a fund typically land in the 14–17% of committed capital range.
I’ve seen fees run from 1% in large follow-on funds to 3% in high-demand managers where access is the privilege. Staggered structures, upfront fees, and waived fees all exist depending on how the LP negotiations go.
The mistake most first-time GPs make: modelling fees on year 1 numbers and assuming they’ll hold. Year 6 tells a very different story. Model lifetime fees, not annual ones.
Fund managers consistently underestimate lifetime fees because they model year 1 and assume it holds.
Year 6 tells a very different story. Reuben AI’s fee tracking and budget projection tools are built around the actual lifecycle (investment period, post-investment, write-downs) so your model reflects reality, not optimism.
→ goreuben.com (code BATKO for 15% off)
🏛️ The AFSL: Own It or Rent It
Running a venture fund means you’re offering a financial product under Australian law. You need an AFSL. Covered in Part 1 at a high level - here’s the detail.
(1) Own it.
You’ll need:
Demonstrable professional experience
At least one designated Responsible Manager (trained and certified)
Annual audit and financial statements
Cash flow and NTA projections
Documented risk management systems
6–9 months and a quality legal team
(2) Rent it.
Budget roughly $20k/year plus ~$15k/year in compliance costs. Faster to get started. But you’re operating under someone else’s licence - they’re ultimately responsible for your compliance and will require regular reporting from you. You’re at their discretion.
Most emerging managers rent first and build toward ownership as the firm matures. The trade-off is speed now versus control later. Understand it before you sign.
⚖️ Legal Entity: MIT, AMIT, ESVCLP, ESIC
This is where legal fees start to feel justified.
Your fund will almost certainly be structured as a Managed Investment Trust (MIT) - or more specifically, an Attribution MIT (AMIT), which allows for more equitable attribution of tax items across investors with different tax positions.
If you’re raising $10m+, you may qualify for VCLP or ESVCLP status. ESVCLP gives LPs exceptional tax treatment: capital gains tax is waived on exits.
The trade-off: regulatory obligations on you as manager are significantly more stringent.
Even without ESVCLP, the ESIC (Early Stage Investment Company) status of your portfolio companies can flow through to LPs - a 20% tax offset on qualifying investments, capped at $200k. The offset is upfront, whereas ESVCLP only triggers at an exit event. In pure dollar terms, ESVCLP is generally the better deal. But ESIC is available to more managers and more funds.
One thing that was new to me: AMITs legally cannot hold controlling rights in portfolio companies. In practice, this means no veto rights and no board seats. If your investment strategy involves governance control or board representation, flag this with your lawyers before you draft a single term sheet.
🗳️ Committees
You’ll need to formally establish two:
Investment Committee (IC) - formed at first close. Responsible for approving all investments and divestments. Think carefully about composition, quorum rules, and whether a single member can block a deal.
Advisory Committee - formed at latest by final close. Handles trust amendments, conflicts of interest, and edge cases outside normal fund operations.
These are not administrative formalities. How your IC is structured determines your investment velocity. If you need five people in a room to approve a cheque and one of them is overseas when a deal is moving, you miss deals. Build the process for how you’ll actually operate - not how you imagine you will.
How your IC is structured determines your investment velocity. And how defensible your decisions are when a regulator or LP asks. Reuben AI captures decision provenance at the IC level: who approved, when, on what data. Your governance holds up because the record was built in real time.
See how it works → goreuben.com (code BATKO for 15% off)
🥕 Carry: Where Culture Gets Priced In
The carry structure is, in my view, the single most revealing thing about a VC firm’s actual culture.
Not the website. Not the values page. The spreadsheet.
The basics. Once you’ve returned 1x capital to investors, two things activate:
The hurdle - a minimum annual return (commonly 8% IRR equivalent) that must be achieved before carry kicks in. Protects LPs from paying profit share on mediocre performance.
Carry - the fund manager’s profit share. Standard is 20%, ranging up to 30% for in-demand funds.
Two structural decisions that define your firm:
When is carry allocated?
Fixed - allocated at fund inception when the carry trust has no real value. Cleaner, simpler, less tax complexity. The downside: one shot. Future team members have to wait for the next fund.
Discretionary - allocated over the fund’s life, with more flexibility to reward contributors as the team grows. The complication: by the time you allocate later, the carry may already have real value, which creates tax implications worth thinking through early.
Who gets it?
This is the real culture test. No company values page will tell you more than the carry allocation spreadsheet. Three archetypes I’ve seen in practice:
Investment team only. How most firms start. Greed is sticky - the structure rarely gets updated as the team grows. The ops, platform, and community people who power the machine get nothing. Resentment brews slowly, then quickly.
Full team, skewed to investment. Everyone’s included but heavily weighted toward seniority and investment roles. More equitable than the first, still hierarchical.
Full team, roughly equal. Genuinely haven’t seen it in practice outside Startmate. We believe the whole company creates the return. Put your money where your values are.
Vesting typically runs the full fund duration - not the 4-year startup cycle. Most structures are front-loaded, with a 1-year cliff. By the time you’re substantially vested, the next fund is probably already launching. The cycle continues.
Layer in the GP commit - the requirement for GPs to have skin in the game, often millions they don’t have and have to borrow, repayable only on an exit - and you’ve built a system designed to keep people in orbit indefinitely.
The golden handcuffs are real. Just know you’re wearing them before you put them on.
🧾 Cost: Budget for the Build
Legal establishment will cost between $80k and $120k, depending on structural complexity, non-standard clauses, and how many side letter negotiations you end up in.
The firms doing most of this work in Australia:
G+T and PMC Legal handle the bulk of Australian VC fund establishment
You’ll need a tax firm alongside - we used EY
The documents that matter:
Trust Deed - the master document. Every rule, clause, and mechanism governing your fund lives here. Non-standard changes cost time and money. Get this right before anything is signed.
Information Memorandum (IM) - the investor-facing summary: thesis, deployment model, risk disclosures, committee structure, duration. This is what LPs read when they’re deciding.
Subscription Agreements - what investors sign when committing capital. Seems standard. It won’t be.
Side Letters - pray you only need a few. Cornerstone investors will request bespoke reporting, special structures, or preferential terms. Each one is a separate negotiation. Each one takes longer and costs more than you expect.
Foreign Investor Documentation - every new foreign LP requires analysis of their local tax obligations and additional reporting requirements. Trust me: not fun, not cheap.
The timing trap: establishment fees are a legitimate fund expense, recovered in your first capital call. But you have to personally front the cash before the fund legally exists. The fund can’t pay for its own creation. Plan your cashflow accordingly.
You have to personally front establishment costs before the fund legally exists. That’s hard enough without your side letter terms and foreign investor requirements scattered across email threads.
Reuben AI keeps LP-level terms, compliance requirements, and the full document history in one place so nothing falls through when your lawyers or auditors come calling.
Start for free → goreuben.com (code BATKO for 15% off)
⚡ Quick Reference: Part 2 Checklist
✅ Want the full checklist of every step across all three parts?
🔜 Coming Up
Part 3: Running the Fund Post-Close - the part nobody puts in the deck. Investor onboarding, capital calls, and the compliance reporting treadmill that never fully stops.
This series is presented in partnership with Reuben AI, the data backbone for private capital. One connected platform covering deal sourcing, due diligence, portfolio monitoring, LP reporting, and compliance. Built for fund managers who can’t afford to throw people at operational problems.
Use code BATKO for 15% off → goreuben.com
If any of this resonates or you’ve got questions, hit me up.
Reply to this email or DM me on LinkedIn.
🤙
Capital formation timelines compress differently when your LPs are DFIs or family offices used to frontier-market volatility. The real test is not the trust deed language. It is whether your first-close anchor still shows up when the next local election or currency move hits.