How do venture capitalists get paid?

Venture capitalists get paid through two mechanisms: management fees and carried interest.

Management fees: The annual fee charged to LPs to cover the fund's operating expenses. Standard is 2% of committed capital per year, though this often steps down after the investment period. For a $200M fund, that's $4M/year — which sounds like a lot but covers salaries, rent, travel, legal, and all other operating costs for a team of 10-15 people over 10 years.

Carried interest ('carry'): This is where the real money is. VCs typically keep 20% of the fund's profits after returning all LP capital. For a $200M fund that returns $800M total ($600M profit), the carry pool is $120M — distributed among the partners based on their carry allocations.

The waterfall: Carry is only paid after LPs have received their invested capital back (and sometimes a preferred return, called a 'hurdle rate' of 6-8%). Until then, distributions go to LPs first.

At top funds, GPs can accumulate hundreds of millions in carry over a career. But it takes 7-10 years from fund close to full carry realization — this is a long game.

For junior team members (analysts, associates): compensation is primarily salary (typically $100-250K base), sometimes modest bonuses, and possibly small carry allocations (1-5% of the carry pool). Carry at junior levels takes a long time to pay out and is highly contingent on fund performance.