§ 01
| Component | Role | Economics |
|---|---|---|
| Limited Partners (LPs) | Provide capital (endowments, pensions, family offices) | 90–99% of fund profits after hurdle |
| General Partners (GPs) | Manage fund, select investments | 2% management fee + 20% carry |
| Fund life | 10 years (with 2-year extensions) | First 5 years invest, last 5 harvest |
| Carry (carried interest) | GP’s profit share above hurdle rate | Typically 20% of profits above 8% hurdle |
§ 02
VC returns follow a power law: a small number of investments generate the vast majority of returns. A top-tier fund might invest in 30 companies, but 1–2 home runs (10–100x returns) drive the fund’s overall performance.
§ 03
Think of the most valuable tech companies today. Most were VC-backed. The early investors in those companies earned 100–1000x returns — but for every mega-winner, there were dozens of failures.
§ 04
A VC fund invests in 30 companies. 20 fail completely, 8 return 1–3x, and 2 return 50x. Is this a successful fund?
§ 05
§ 06
VC Fund A deploys $100M across 20 companies. 10 die (0x return), 8 return 1x ($80M), 1 returns 5x ($25M), 1 returns 20x ($100M). Total proceeds: $205M. Is this a successful fund?
Five questions · AI feedback
Sit with the ideas.
A $400 million VC fund charges 2% management fees and 20% carried interest above an 8% hurdle. After 10 years, the fund returns $1.2 billion to LPs. Approximately how much does the GP earn in total (fees + carry)?
Why: