<story><title>Ask HN: How much money does an average VC make?</title><text>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.</text></story><parent_chain><item><author>SeoxyS</author><text>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.&lt;p&gt;VCs are paid in two ways:&lt;p&gt;1) Management fees. 2%&amp;#x2F;year of funds under management is common. (Over the ~10yr life of a fund, that&amp;#x27;s ~20% of the capital.)&lt;p&gt;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%.&lt;p&gt;So, let&amp;#x27;s imagine a fictional $1B fund. Here&amp;#x27;s how the numbers might work out.&lt;p&gt;Y-0: Fund is raised. VC contributes $10M for 1% of the fund.&lt;p&gt;Y-0: 2% management fees are used to cover expenses &amp;#x2F; pay VCs.&lt;p&gt;Y-1~2: Fund invests in stuff, takes additional 2% management fees every year.&lt;p&gt;Y-2~9: Fund is depleted for new investments. Continues to take 2% management fees every year.&lt;p&gt;Y-10: Fund&amp;#x27;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&amp;#x27;ve also taken $200M in management fees (2% a year for 10 years). Total profit: $305M.</text></item></parent_chain><comment><author>ptrklly</author><text>I&amp;#x27;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&amp;#x27;s life (typically defined as an &amp;quot;investment period&amp;quot; after which they&amp;#x27;re not allowed to make new investments), and that helping portfolio companies and helping achieve exits takes less time &amp;#x2F; staff &amp;#x2F; 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.&lt;p&gt;2) On the carried interest often the VC fund can only earn that &lt;i&gt;after&lt;/i&gt; they&amp;#x27;ve returned a certain amount to Limited Partners (called a &amp;quot;preferred return&amp;quot;, and typically ~8%; if they don&amp;#x27;t return an 8% IRR to LPs, they only get the management fee and whatever they earn on their own out-of-pocket contribution.&lt;p&gt;In general I&amp;#x27;d just add that this is a highly negotiated point for each Fund and differs from firm to firm and fund to fund.&lt;p&gt;Source: I work as an advisor to investors who participate as LPs in VC funds.</text></comment>
<story><title>Ask HN: How much money does an average VC make?</title><text>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.</text></story><parent_chain><item><author>SeoxyS</author><text>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.&lt;p&gt;VCs are paid in two ways:&lt;p&gt;1) Management fees. 2%&amp;#x2F;year of funds under management is common. (Over the ~10yr life of a fund, that&amp;#x27;s ~20% of the capital.)&lt;p&gt;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%.&lt;p&gt;So, let&amp;#x27;s imagine a fictional $1B fund. Here&amp;#x27;s how the numbers might work out.&lt;p&gt;Y-0: Fund is raised. VC contributes $10M for 1% of the fund.&lt;p&gt;Y-0: 2% management fees are used to cover expenses &amp;#x2F; pay VCs.&lt;p&gt;Y-1~2: Fund invests in stuff, takes additional 2% management fees every year.&lt;p&gt;Y-2~9: Fund is depleted for new investments. Continues to take 2% management fees every year.&lt;p&gt;Y-10: Fund&amp;#x27;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&amp;#x27;ve also taken $200M in management fees (2% a year for 10 years). Total profit: $305M.</text></item></parent_chain><comment><author>charlesdm</author><text>One thing to consider is that this is the story when you join an existing VC firm as a partner.&lt;p&gt;In a way, a lot of these funds are entrepreneurial ventures as well. It&amp;#x27;s not too hard, for 1-2 people who knows plenty of wealthy individuals, to raise a $25-50M fund. You&amp;#x27;d be amazed at how much money is available in the world (pension funds, wealthy families, endowments, etc etc)&lt;p&gt;So, the math tends to be a 2-20 (management fee &amp;#x2F; carry).&lt;p&gt;Let&amp;#x27;s say this fund returns $100m over a period of 5 years:&lt;p&gt;Fund size: $50M.
Y1-5: Management fee (used for salaries + general expenses), 2%: $1M per annum (- expenses, e.g. secretary, travel, etc). To be divided between two partners. For a small fund, this is probably $200-300k per annum, per partner. Not bad, but not amazing either, given you just spent 1-2 years raising all that money.&lt;p&gt;When the fund is liquidated, the fund managers receive 20% of the capital gain. They first return the $50m initial capital, and then get 20% of the $50m they made, i.e. $10M (split between both partners).&lt;p&gt;Partners usually also invest some of their own money. It&amp;#x27;s rare to see funds where the principals don&amp;#x27;t have capital invested (this aligns incentives)&lt;p&gt;Edit: same math applies to private equity funds, where deals tend to be less risky than in VC. (for the fund, not the acquired company)</text></comment>