1) Management fees
- An annual Management Fee, which is usually a percentage (typically 2.5%) of the Capital Commitments to the Fund.
- This fee covers the operational expenses of the General Partners (salaries, admin, etc)
2) Carried Interest
Once the VCs make investments, they tend to harvest the investment following 3 to 7 years. The returns from the investment are typically split as follows between the Limited Partners and the General Partners.
- The Limited Partners receive 99% of all the returns and the GP/VCs receive 1% of all returns
- Once the Limited Partners receive back 100% of their Capital, the VC is entitled to 20% (up to 30%) of returns over and above that mark. This is called the GP’s “Carried Interest.”