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It's an outlier [0] driven business. Median may be more important than mean. E&Y has some great data on VCs in general. [0] Quick math... "In 2013, 153 ear

It's an outlier [0] driven business. Median may be more important than mean. E&Y has some great data on VCs in general. [0] Quick math... "In 2013, 153 early-stage funds in the US raised US$9.4 billion" Going with the mean (even though median is better) suggests the average fund is ~$60 million. Let's say that a firm runs 2 concurrently. 2013 was a boom year, so let's say the last fund was $40. So it's 100mm under management. They keep 2% of funds under management, and get 20% carry. Let's say that the funds appreciate 10% a year (we're talking mean - it may actually be lower). That means 2% of 100m = $2mm in management fees and 20% of 20% of 10% of 100m = $2mm in carry. (I'm ignoring compounding, but let's let that slide) The firm has $4mm to pay rent, fancy trips, business dinners and nice salaries. If the firm invests the $100mm in 20 deals, perhaps it needs 5 partners (4 boards per partner?) and 5 associates. Let's call the fixed overhead a half million dollars? That leaves $3.5 million - perhaps each partner takes home $500K and each associate $200K? Or $600K per partner and $100K per associate? My informal intuition is that the top partners do much better, while most folks do a little worse. We're also in a boom time now because great investments are being harvested, and lots of money is entering the sector. Net - they're doing good in both carry and management fees. This may sound a lot, but generally the private equity folks earn more. [0] http://www.forbes.com/profile/john-doerr/ http://www.forbes.com/profile/john-doerr/ [1] http://www.ey.com/Publication/vwLUAssets/EY-venture-capital-insights-2013-year-end/$FILE/EY-venture-capital-insights-2013-year-end.pdf http://www.ey.com/Publication/vwLUAssets/EY-venture-capital-...

SeoxyS 11y ago
I think you're misunderstanding how fees & carry works. The carry is not paid out until the fund returns its investment, much later, so its $2M in your example isn't paid out until years down the line. The only way that the firm can pay salaries etc. is from the management fees.
- mathattack 11y ago
  I was oversimplifying, since firms with multiple funds are doing a mix of investing and harvesting at any given time. What you say is more precise - it's more accurate to view the 2/20 as base salary and bonus, especially since the former is much more predictable.

SeoxyS 11y ago

I think you're misunderstanding how fees & carry works. The carry is not paid out until the fund returns its investment, much later, so its $2M in your example isn't paid out until years down the line. The only way that the firm can pay salaries etc. is from the management fees.

mathattack 11y ago
I was oversimplifying, since firms with multiple funds are doing a mix of investing and harvesting at any given time. What you say is more precise - it's more accurate to view the 2/20 as base salary and bonus, especially since the former is much more predictable.