Funding & Investment
Carried Interest
Also Known As
CarryProfit SharePerformance Fee
Carried interest (or "carry") is the share of investment profits—typically 20%—that General Partners receive as compensation after returning invested capital to Limited Partners.
What is Carried Interest?
Carried interest is the primary incentive for venture capital fund managers. It aligns GP interests with LP interests by rewarding GPs based on fund performance rather than just fees.
How Carry Works
- Fund Returns Capital: First, LPs get their invested capital back
- Preferred Return: LPs may get a hurdle rate (e.g., 8%) first
- Catch-Up: GPs catch up on their carry percentage
- Profit Split: Remaining profits split 80/20 (LP/GP)
Carry Example
$100M fund returns $300M:
- Return of capital: $100M to LPs
- Remaining: $200M profit
- LP share (80%): $160M
- GP carry (20%): $40M
Carry in Venture Studios
Studio economics can differ:
- Higher ownership = potentially higher carry
- Studio operating costs may reduce carry
- Carry may be split between studio team members
- Some studios take carry at company level instead of fund level
Example Usage
“The GP's carried interest from the fund's top performer exceeded all management fees combined.”