Carried Interest
GP Profit Sharing
Definition
Carried interest (carry) is the share of fund profits paid to general partners (GPs) as compensation. Typically 20%, it's calculated after returning limited partners' (LPs) capital and often requires a hurdle rate (minimum return).
In Simple Terms
Carry is the VC's "commission" on fund profits. If the fund makes $100M profit, GPs keep $20M (20% carry) and return $80M to LPs (plus their original $200M back). It's the "carry" because GPs "carry" the fund's performance.
Why It Matters
Carry aligns GP interests with LPs. GPs only get paid if the fund succeeds, so they're incentivized to maximize returns. Carry is how VCs build wealth (salary is typically low). Negotiating carry percentage is a key GP-LP term.
Example
Fund raises $100M, returns $300M total. LPs get $100M back (their capital), then $200M profit split: $160M to LPs, $40M carry to GPs. VCs made 20% of profits on top of their invested capital.