Fund Structure
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Quick Answer
The schedule by which individual GP team members earn their share of the fund's carried interest over time, typically tied to continued service at the firm.
Carried Interest Vesting is the mechanism by which individual partners and investment professionals at a VC firm earn their allocated share of the fund's carry pool over a defined period, usually 3-5 years. Similar to employee stock vesting, carry vesting ensures that team members who leave the firm early forfeit unvested carry. A typical vesting schedule might be 4-year vesting with a 1-year cliff, meaning no carry is earned in the first year and then vesting occurs quarterly or annually thereafter. Vesting is distinct from carry distribution—an individual can be fully vested but not receive any carry until the fund generates sufficient returns. Unvested carry from departing team members is typically reallocated to remaining partners or a successor pool.
In Practice
A junior partner joins a fund and is allocated 5% of the carry pool on a 4-year vesting schedule with a 1-year cliff. After 2.5 years, she has vested 62.5% of her carry allocation. If she leaves at that point, she retains carry rights on 3.125% of total carry (62.5% of her 5% allocation). The unvested 1.875% is redistributed among remaining partners.
Why It Matters
Carry vesting is the primary retention tool in venture capital. It incentivizes team stability throughout the fund's life and protects remaining partners from subsidizing someone who leaves early. Prospective hires should carefully review vesting terms, acceleration clauses, and what happens to carry upon departure.
VC Beast Take
Carry vesting is the golden handcuffs of venture capital. It's designed to prevent talent flight, but it often creates perverse incentives where underperforming partners stick around just to vest their carry. The real tension emerges during fund transitions—does a departing GP deserve carry on investments they sourced but won't see through to exit? Most firms are moving toward shorter vesting periods to reduce this friction.
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Carried Interest Vesting is the mechanism by which individual partners and investment professionals at a VC firm earn their allocated share of the fund's carry pool over a defined period, usually 3-5 years.
Understanding Carried Interest Vesting is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
Carried Interest Vesting falls under the fund-structure category in venture capital. This area covers concepts related to how venture capital funds are organized, managed, and governed.
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