Really?? Carried Interest Offer in Top-Heavy $30m VC Fund
Just got an offer to join a $30m venture fund as a VP with 1% carry. The problem: GP carry allocations are distributed among to the two "founders" of the fund, which are only involved lightly-- no day to day sourcing or evaluation-- mostly just a voice in the investment committee. The main GP and I will be the only ones sourcing, evaluating, and monitoring deals on a full time daily basis.
Long term incentive seems bleak; even if larger funds are raised in the coming years (perhaps $50-75m, then $125-150m), the founders that are involved part time but taking carry makes it hard for me to achieve meaningful carry as a VP or Partner anytime soon.
It's essentially 3 partners with $30m AUM, 2 of them not contributing full time, all taking carry. Anyone seen this before? Is it common? Debating on how to address.
If you run the math, nothing makes sense? Did the founders fund it with their own capital? Operating such a small fund would require consistently crazy irr to run sensibily.
Yes absolutely have seen it - since the business itself may not be raking in the $$$ at that size (see comment above) founders will absolutely take as much carry as they can as well.
This is also why so many people have spun out to start there own funds, because unless you are at the very top, it can be hard to make the money most people want and you lack real control... You start a fund, give people a bunch of false promises that they'll be able to get more and more over time and you make your $$$ while they all grind it out. Decent business model
Assuming the fund is getting 2% management fees, that's only $600k/yr to pay employees, rent, consultants, lawyers, travel, resources, etc etc. I'm not sure how much VC firms spend on legal fees on one investment (guessing $30-$50k?), but legal fees alone (excl. accountants, market study, IT, etc etc) on an LBO can easily run a $300k from legal diligence to legal documentation. I wouldn't be surprised if the two founders not only put up 5-10% as their GP commit, plus self funding operating costs. Maybe 1% for a VP is too low. But in principle, I would fully expect the founders to take almost all of the carry, especially for a first fund. That said, I would also expect them to reduce their allocation in subsequent funds, otherwise there's no way to attract and retain talent long term.
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