Dear VC Lab team & community, Regarding the Venture Partner template: to which degree do these percentages change in function of fund size? As the fund size becomes bigger, carry allocations become smaller? E.g. $US10MM fund size vs. $75MM fund size. Decile base says no change but can't imagine that is true? Thanks! Wim

Asked by:

Wim Reyntiens

May 10, 2024

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2 answers

Mike Suprovici

Accepted Answer

May 10, 2024

No, it doesn't work like this. Assume carry is 100%, irrespective of fund size. When you give carry to a VP, it's a % of 100%. So, if you decided to give a VP 5% it will be 5% of 100% of the carry. This has nothing to do with the fund size.

Also, the extreme example that you have above is unrealistic. It's common for funds to over-subscribe the target stated on the LPA, but it's not common for funds to over-subscribe by that much nor will LPs be ok with you doing this because it drastically changes their return profile.

So, in practice, it's normal for people to maybe over-subscribe by 50% - 200%, but not 500%.

In the event that you truly had that much more demand from LPs, you would close a Fund 1 and move the rest of the demand into Fund 2.

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Community Member

May 10, 2024

Hi Mike, I don't agree. The 100% you refer to very much depends on fund size. In addition my question has nothing to do with oversubscribing.
Clarification:
We are launching a €75m fund not a €10m fund. Assume 3x MOIC that is €150m * 20% = €30m in total carry. If you allocate 5% of the total carry to your venture partner, he gets €1.5m

If you do the same for a small fund: €10m @ 3 x MOIC is €20m * 20% in total carry = €4m * 5% is €200k

€1.5m compensation vs. €200k compensation is very different.
So to what extent do venture partner % carried interest allocation go down with fund size?

This is not an opinion. The carry is 100% and vp shares are % of 100. When you give someone x% of the carry they get that. So, let's say you do a 1st close of €10m and you can't raise more. That's your fund size now. You're not going to change % carry up or down depending on where you land in respect to the target. The values that we have put in the VP agreement are directionally right:

https://govclab.com/2022/03/10/venture-share/

It's up to you to figure out from there what you think is fair depending on the value of the VP.

Also, the larger the fund, the harder it is for the fund to be in carry. This is because: 1. it's harder to return a big fund 2. if it's a fund 1/2 LPs are going to put a lot of conditions to de-risk the fund for themselves like hurdles 3. they will be on the European waterfall so you will not see carry for 10 - 15 years.

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