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Explaining carried interest

The Equity Kicker

Carried interest’ is the name given to the profit share schemes that investors in venture capital funds, typically called ‘LPs’, use to incentivise the partners at at the funds in which they invest. Much like options in a startup carried interest schemes vest over time, typically five or seven years.

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Why Average VC Returns Don’t Really Matter

Agile VC

And even if they wanted the index return, there is essentially no way to buy (or sell) a broad-based basket of VC funds in the way you can trade the S&P 500 or Russell 2000 or other public equity index. fund or marginally profitable fund doesn’t generate any carry for the GPs that are investing it.

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How to Negotiate a Partner Role at a Venture Capital or Private Equity Firm

David Teten

It’s hard enough to get a job at a venture capital or private equity firm; it’s even more complex to join as a Partner. Also see Preqin’s Key Due Diligence Considerations for Private Equity Investors. . VC and private equity are very illiquid on both the investing and the personnel side. So assessing fit is critical.

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What’s the Difference? Venture Capitalist vs. Angel Investor

The Startup Magazine

An article in Forbes explains that a venture capital firm makes its money through management fees (a percentage of the amount of capital that they have under management) and carried interest (a percentage of the profits of the business). Investor Involvement.

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The Rise & Fall of Great Venture Firms [Part 1] ? AGILEVC

Agile VC

in equity & loans which was ultimately worth >170x ($355M) when DEC went public about a decade later. What’s a “fair” split of fee income and carried interest when a partner joins several years/funds after others? Big success was Digital Equipment Corporation (DEC), in which ARD invested about $2.1M

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High Returns On A Small Fund Challenge Low Returns On A Big Fund

David Teten

The Economics of Private Equity Funds demonstrates that the VC industry survives mostly on fee-based income (of which larger funds have a proportionally larger amount). Beyond the fact that LP capital commitments don’t prove anything about returns, however, large funds are likely much more resilient to a few bad years than small funds are.

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Pari Passu or F.U.little guy

Professor VC

Another closely related area is that of variable pricing on convertible debt or equity deals where different investors have different caps. It is assumed that the angel has done diligence and will be working with the company going forward to earn a carried interest from others investing in the syndicate.