Carry (Carried Interest)

Also called: Carried Interest, Carried

TL;DR

The share of fund profits paid to the GPs above a defined hurdle, typically 20% in venture funds, 'carry' is the GP's economic upside.

Carried interest is the percentage of fund profits the General Partners keep after returning LP capital and (in many funds) clearing a hurdle rate. The standard venture fund structure is '2 and 20', 2% annual management fee and 20% carry. Carry is usually subject to a 'European waterfall' (paid only after the entire fund is in profit) or an 'American waterfall' (paid deal by deal).

Carry is what gives VCs the same incentive as founders: both make life-changing money only on outsized winners. The mechanics of how carry vests, distributes, and accelerates inside a GP partnership are themselves complex.

Formula

Carry = Carry % × max(0, Total Distributions − Paid-In Capital − Hurdle)

Carry % , GP share of profits, typically 20% (sometimes 25% to 30% for top-tier firms)
Total Distributions , Cumulative distributions to the fund (before carry split)
Paid-In Capital , Capital called from LPs that must be returned first
Hurdle , Minimum LP return (e.g. 8%) that must be cleared before GP earns carry, if applicable

European waterfall: hurdle and full return of capital must clear before any carry. American waterfall: carry can be paid deal-by-deal with clawback at fund end.

Worked example

Fund returned $400M on $200M paid-in (no hurdle). Profit = $200M; GP carry = 20% × $200M = $40M; LPs receive $200M + $160M = $360M (1.8× DPI net of carry vs 2.0× gross).

Common pitfalls

•Conflating GP economics with fund economics.
•Misunderstanding which waterfall structure applies.
•Underestimating how long carry takes to actually pay out.

When this shows up in a pitch deck

Fund-level term; founders may discuss carry indirectly when assessing investor incentives.

Related terms

Management Fee

An annual fee LPs pay GPs to operate the fund, typically 2% of committed capital during the investment period and lower after.

Hurdle Rate

The minimum annualized return GPs must deliver before they can begin earning carried interest.

GP Commit

The capital General Partners personally commit to their own fund, signaling alignment with the LPs they're raising from.

Limited Partner

A passive investor in a venture fund, providing capital but not making investment decisions, and limited in liability to their commitment amount.

General Partner

A managing partner of a venture fund, responsible for sourcing, diligence, investment decisions, and value-add to portfolio companies.

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