Fund Structure
Carried Interest
The share of a fund's profits (typically 20%) that goes to the general partners as performance compensation, paid after returning all LP capital.
Carried interest (or 'carry') is the primary performance compensation mechanism in venture capital. Standard carry is 20% of the fund's profits. The other 80% goes to LPs. Carry is only paid after all LP capital has been returned — if a $100M fund returns $400M total, the GP splits the $300M profit with LPs: $60M to GPs (20%), $240M to LPs (80%). Top-performing funds sometimes charge 25-30% carry. Carry is distributed among partners according to pre-agreed allocations. One of the most controversial aspects of carried interest: it's taxed as long-term capital gains (typically 20%) rather than ordinary income (up to 37%), which critics call a tax preference for wealthy fund managers.