The 20% is carry, which is earned as a percentage of net income. So let's say that A16Z invests 5M in a company on a 10M pre-money valuation. A16Z owns 1/3 of t

The 20% is carry, which is earned as a percentage of net income. So let's say that A16Z invests 5M in a company on a 10M pre-money valuation. A16Z owns 1/3 of the company. The company sells for $30M the next day to Facebook. A16Z now has $10M dollars. They take $2M of that for themselves and then they distribute back to the LPs the other $8M. I'm pretty sure carry is profit (http://en.wikipedia.org/wiki/Carried_interest http://en.wikipedia.org/wiki/Carried_interest), so in your example A16Z would pocket $1M, not $2M (because the $5M A16Z invested needs to be repaid to the LPs first, and then A16Z gets 20% of the remaining $5M). Please correct me if I've misunderstood.