How VCs Make Money

How VCs Make Money

June 23, 2020 by investor

Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing.

So how do Venture Capitalists make money?

VCs charge the limited partners a management fee on the funds raised. This is traditionally 2% which is paid out every year for the life of the fund.  

Some funds stop the management fee around year six or seven as proceeds from the investments start coming in.

Micro VCs often charge 2.5 or 3% of the funds raised since the amount of funds is lower than standard. 

The second source is called “carry” and is a percentage of any proceeds going back to the investor from the investments.

This is traditionally 20%.   

Some funds start taking carry at the beginning of the investment returns, while other funds start this after the investor receives their initial investment.


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Disclaimer:
Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.

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