

Ask HN: How are venture capitalists compensated? - LedZeppelin

Does anyone have ballpark numbers for how venture capitalists are compensated?  When their portfolio company gets bought&#x2F;sold what percent of the venture capital firm&#x27;s equity stake goes the vc himself&#x2F;herself?
======
patio11
The _firm_ overwhelmingly makes two and twenty.

Two: The firm charges a management fee based on committed capital. The typical
rate is 2% per year. So, if they're running a $100 million fund, they transfer
$2 million from the limited partners (the investors) to themselves every year.
The management fee theoretically pays for salaries and those costs which can't
get passed to startups the firm invests in. (I say "theoretically" because
there is an inflection point in the hundreds of millions in fund size range
where the management fee is so large that one cannot possibly spend it all
except by increasing salaries, such that partners no longer need to be
successful in investing to do well.)

Twenty: VCs receive a percentage of the "carry", which is the capital gains on
the fund's investment. My understanding is this is typically due upon an
individual investment's exit or the end of the fund's life, whichever comes
first, but don't trust me on the micromechanics of that. If a VC firm invests
$20 million in a company and it later sells for $60 million (their share), the
gain is $40 million, so $8 million gets taken for the VC firm and then $32
million is split by the limited partners.

This is compensation for _firms_. Compensation for _partners and associates_
are handled differently. Typically, associates are on straight salary. (Want a
ballpark number? "Well-off lawyer.") Partners typically both have a salary
(Want a ballpark number? "More than anyone in the Valley who is not CEO of a
public company.") and take home a percentage of the carry (the twenty). Which
partners get what percentage is a matter highly specific to the firm's
internal structure: suffice it to say that it is good to be king in a lot of
places.

Much like law firms, the main form of professional advancement at VC firms is
to claw one's way from associate to partner, at which point things get
radically more financially rewarding. (The alternative is to build up
relationships with wealthy people and then go into business for yourself, by
convincing 5 to 20 people to stake you with a few million dollars apiece.)

n.b. It is common for senior partners in the VC fund, particularly those who
have successfully lead funds before (many VC firms manage multiple funds, each
with a 10 year life and, say, 3-4 years between start dates), to have money
invested in the fund themselves. This is generally a fairly modest amount of
money relative to fund size.

~~~
LedZeppelin
In your example don't you mean 32mil to the firm and 8mil to the partners?

~~~
aptwebapps
No, he meant what he said: the firm is the VC firm and the limited partners
are the investors behind them.

------
ethanazir
If you really are a capitalist; your reward is the growth in capital. If you
are an agent working for some capitalists then you get whatever you bargained
for. This question implies that capitalist collude or that some elite U. grads
are unionized to set wages. Which is essentially what both groups are are
trying to do; but view the status quo with this lense.

------
wmf
You're probably better off googling how VC works, but AFAIK all of the equity
would be effectively owned by the limited partners so the VC can't really take
it. The VC's profit comes from carried interest.

