What is Carried Interest?
Carry is how VC partners make real money. It's their share of profits (typically 20%) after returning invested capital to LPs. A partner's carry is their ownership of the fund's upside.
How Carry Works
Fund returns capital to LPs first. After returning 1x (sometimes with a hurdle rate), profits split 80/20: 80% to LPs, 20% to GPs. Partners divide that 20% based on their carry percentage.
Why Founders Care
Understanding carry helps you understand VC motivation. Partners need big returns on winning investments to make career-defining money. This affects their advice and expectations.
Example: $100M fund, 2x return ($200M)
- Capital returned to LPs: $100M
- Profits: $100M
- LP share (80%): $80M
- GP carry (20%): $20M
If partner has 10% of carry: $2M from this fund.
Partner led $5M Series A at $20M post.
Company exits at $500M (25x on invested).
Fund owns 25% at exit = $125M.
Profit: $125M - $5M = $120M.
Fund carry (20%): $24M.
Partner's share (15% of carry): $3.6M from this one deal.
This is why VCs swing for fences.