# Carried Interest (Carry)

## Quick Definition

The share of investment profits that fund managers receive as compensation, typically 20% of gains.

## What is Carried Interest?

Carry is how VC partners make real money. It's their share of profits (typically 20%) after returning invested capital to LPs. A partner's carry is their ownership of the fund's upside.

## How Carry Works

Fund returns capital to LPs first. After returning 1x (sometimes with a hurdle rate), profits split 80/20: 80% to LPs, 20% to GPs. Partners divide that 20% based on their carry percentage.

## Why Founders Care

Understanding carry helps you understand VC motivation. Partners need big returns on winning investments to make career-defining money. This affects their advice and expectations.

## Formula

Example: $100M fund, 2x return ($200M)

- Capital returned to LPs: $100M
- Profits: $100M
- LP share (80%): $80M
- GP carry (20%): $20M

If partner has 10% of carry: $2M from this fund.

## Example

Partner led $5M Series A at $20M post.

Company exits at $500M (25x on invested).

Fund owns 25% at exit = $125M.

Profit: $125M - $5M = $120M.

Fund carry (20%): $24M.

Partner's share (15% of carry): $3.6M from this one deal.

This is why VCs swing for fences.

## Related Terms

[**Most Favored Nation (MFN)** 
A provision guaranteeing an investor will receive terms at least as favorable as any subsequent investor receives. 
Learn more](/content/terms/most-favored-nation-mfn/index.html)

[**Qualified Financing** 
The minimum raise amount that triggers automatic conversion of convertible notes or SAFEs. 
Learn more](/content/terms/qualified-financing/index.html)

[**Maturity Date** 
The deadline by which a convertible note must be repaid or converted to equity. 
Learn more](/content/terms/maturity-date/index.html)

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