How VC Funds Make Money

Venture capital depends on a few huge winners to make up for many losers. Here is how VC funds are structured, how managers get paid and why the power law shapes everything they do.

Fund structure

A VC firm raises a fund from limited partners, such as pension funds, university endowments and wealthy families. The fund typically invests over three to five years and returns money over about 10 years or more. Managers usually charge around 2% of committed capital a year and keep about 20% of profits, called carried interest.

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