
Ask HN: How much money does an average VC make? - srameshc
How much money does an average VC make ? And how much does the top VCs make and how much personal wealth do they accumulate over their tenure as a VC.
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SeoxyS
VCs raise large funds from institutional investors (pensions funds, university
endowments, etc.) called Limited Partners (LP). Typically, the VC (also known
as General Partner, GP) contributes 1-5% of the fund out of their own pocket,
with the rest coming from the LPs.

VCs are paid in two ways:

1) Management fees. 2%/year of funds under management is common. (Over the
~10yr life of a fund, that's ~20% of the capital.)

2) Carried interest. This is a share of the profits on the fund before the
money is returned to investors. The typical number here is 20%.

So, let's imagine a fictional $1B fund. Here's how the numbers might work out.

Y-0: Fund is raised. VC contributes $10M for 1% of the fund.

Y-0: 2% management fees are used to cover expenses / pay VCs.

Y-1~2: Fund invests in stuff, takes additional 2% management fees every year.

Y-2~9: Fund is depleted for new investments. Continues to take 2% management
fees every year.

Y-10: Fund's last investments exit. Overall, the fund returns a 50% profit
($1.5B, with $500M in profit). VCs take $15M for their original contribution,
and an additional $100M in carried interest. So far, they've also taken $200M
in management fees (2% a year for 10 years). Total profit: $305M.

~~~
ptrklly
I'd add a few points: 1) management fees typically decline after the first few
years of the Fund, rather than staying at 2% for the entire 10 years. This is
to reflect the fact that partners are expected to do more work during the
sourcing and diligence portion of a Fund's life (typically defined as an
"investment period" after which they're not allowed to make new investments),
and that helping portfolio companies and helping achieve exits takes less time
/ staff / expense. The GP also typically raises subsequent funds once the
investment period is over, the management fees of which helps to fund their
overall budget.

2) On the carried interest often the VC fund can only earn that _after_
they've returned a certain amount to Limited Partners (called a "preferred
return", and typically ~8%; if they don't return an 8% IRR to LPs, they only
get the management fee and whatever they earn on their own out-of-pocket
contribution.

In general I'd just add that this is a highly negotiated point for each Fund
and differs from firm to firm and fund to fund.

Source: I work as an advisor to investors who participate as LPs in VC funds.

~~~
nostrademons
What's the relationship between VC funds, VC partners, and VC firms? Are funds
typically associated with a specific GP, or are they associated with the firm
as a whole? Does the firm offer only a single fund at a time, or does a brand-
name VC (say, Sequoia, or Accel, or KP) have multiple offerings with different
portfolio strategies?

Also, is there a good way to find out who is about to start raising money for
new funds, and where in the lifetime of their fund a particular partner might
be? (As in, have they just raised money and are looking for the first couple
investments, or is the investment period about to close and the fund's capital
has all been invested?)

~~~
surfearth
Established venture firms may have multiple vehicles (e.g. a seed fund, main
fund, or growth fund), but the majority of venture firms tend to invest out of
one vehicle at a time (there may be a short period of overlap when new funds
are raised).

If you are not an active investor, getting quality access to information about
funds can be difficult. I'd recommend the firm's website and crunchbase as
free datasources. There are other, higher quality sources, but you need to pay
for access (e.g. dow jones venture source).

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foobarqux
At Kleiner we know from the Pao case that junior partners make $400k while
senior partners make $3 million. That's before carry. Carry is about 20% of
the returns of the fund, which is divided between (senior) partners of the
particular fund --- a VC firm has multiple funds and depending on the firm not
every partner may be a partner in each fund.

I guess you could ball park 5 partners per fund and therefore 4% carry per
partner but that's probably not accurate because the carry distribution likely
rewards partners in proportion to the success of the companies that they
sourced or on whose boards they sit. Also you want to give a little bit to
associates and junior partners.

Carry is not guaranteed but if the returns are positive you will get something
(and 20% of a middling 5% return is still a lot of money on a billion dollar
fund.) In any case carry is valuable in VC because they are like free call
options on very volatile assets and option value increases with volatility.

It's difficult to calculate how much VCs are getting from carry because fund
returns are closely guarded secrets.

All this said it's pretty tough to break-in to top VC firms.

~~~
robk
Kleiner is a huge fund though. Most smaller funds have partners that make a
lot less. If you're an engineer, you're making more than I am as a newish VC
:)

~~~
Enzolangellotti
Yeah, I assume newish VCs have it tougher than most as expenses are high and
management fees won't cover the full costs of operating the business. Well,
you're entrepreneurs working at a higher level of abstraction after all.

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siliconc0w
What you probably want is median - averages are skewed by outliers.

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gburt
Probably not very much (as low as a risk-adjusted average of 0% [^]). As
usual, you're probably better off sticking your money in the broader stock
market.

[^]
[https://server1.tepper.cmu.edu/seminars/docs/VCSDF_2.pdf](https://server1.tepper.cmu.edu/seminars/docs/VCSDF_2.pdf)

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mathattack
It's an outlier [0] driven business. Median may be more important than mean.
E&Y has some great data on VCs in general. [0]

Quick math...

"In 2013, 153 early-stage funds in the US raised US$9.4 billion" Going with
the mean (even though median is better) suggests the average fund is ~$60
million. Let's say that a firm runs 2 concurrently. 2013 was a boom year, so
let's say the last fund was $40. So it's 100mm under management. They keep 2%
of funds under management, and get 20% carry. Let's say that the funds
appreciate 10% a year (we're talking mean - it may actually be lower). That
means 2% of 100m = $2mm in management fees and 20% of 20% of 10% of 100m =
$2mm in carry. (I'm ignoring compounding, but let's let that slide) The firm
has $4mm to pay rent, fancy trips, business dinners and nice salaries. If the
firm invests the $100mm in 20 deals, perhaps it needs 5 partners (4 boards per
partner?) and 5 associates. Let's call the fixed overhead a half million
dollars? That leaves $3.5 million - perhaps each partner takes home $500K and
each associate $200K? Or $600K per partner and $100K per associate?

My informal intuition is that the top partners do much better, while most
folks do a little worse. We're also in a boom time now because great
investments are being harvested, and lots of money is entering the sector. Net
- they're doing good in both carry and management fees.

This may sound a lot, but generally the private equity folks earn more.

[0] [http://www.forbes.com/profile/john-
doerr/](http://www.forbes.com/profile/john-doerr/) [1]
[http://www.ey.com/Publication/vwLUAssets/EY-venture-
capital-...](http://www.ey.com/Publication/vwLUAssets/EY-venture-capital-
insights-2013-year-end/$FILE/EY-venture-capital-insights-2013-year-end.pdf)

~~~
SeoxyS
I think you're misunderstanding how fees & carry works. The carry is not paid
out until the fund returns its investment, much later, so its $2M in your
example isn't paid out until years down the line. The only way that the firm
can pay salaries etc. is from the management fees.

~~~
mathattack
I was oversimplifying, since firms with multiple funds are doing a mix of
investing and harvesting at any given time. What you say is more precise -
it's more accurate to view the 2/20 as base salary and bonus, especially since
the former is much more predictable.

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ingend88
In general, I have seen a range of about 20-30% in long term.

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charlesdm
Your question isn't very clear. Do you mean, what is the average salary of a
VC? How much is their profit share?

~~~
srameshc
I am curious about their entire personal wealth creation in general as an
investor.

~~~
raverbashing
You don't usually start as a VC, but you get richer by other means, then, when
you're a millionaire you just throw money at startups until one of them hits
big or you run out of money

Edit: this is for an Angel Investor, SeoxyS explained better the concept of
general VCs

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rcarrigan87
I can't remember the source, but I feel like I've heard it a few times, that
VC overall is a fairly poorly performing asset class considering the risk.
Most VCs don't beat the market.

~~~
matthewmcg
This was the finding of the famous Kauffman Institute report on their own 20+
years experience as an LP in various funds.

PDF copy here:
[http://www.kauffman.org/~/media/kauffman_org/research%20repo...](http://www.kauffman.org/~/media/kauffman_org/research%20reports%20and%20covers/2012/05/we%20have%20met%20the%20enemy%20and%20he%20is%20us\(1\).pdf)

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HashThis
I know a VC who makes $400k in base salary. FYI on that side

