Re:Ask HN: How much money does an average VC make?
by charlesdm on Saturday May 09, 2015 @04:13PM
(#9517543)
I don't think that's a great example.
1/ If the lifetime of a fund is 10 years, partners don't get the management fee for ten years. They get the fee until the fund is fully invested (usually 5-6 years).
2/ Money in is capital, money out is taxable income (unless it's carry, then it's a repayment of capital/capital gains). If the fund returns nothing, you lose your capital.
This creates following situation:
1/ 2% * 5 years is 10%, meaning as a partner you make 5% (probably a lot less, since you need to deduct expenses).
2/ Once we take into account taxes (let's say ~25% on $x), you are not making much, because your 10% becomes 7.5% after taxes.
But GPs can't invest 5% in a fund of a few billion $/€. Then again, you can't raise that kind of money without a track record, so maybe it doesn't matter.
Re:Ask HN: How much money does an average VC make?
by foobarqux on Saturday May 09, 2015 @05:26PM
(#9517743)
The portion of management fees set aside to invest in the fund probably aren't taxed because they most likely rebate the management fees in exchange for equity in the fund.
1/ If the lifetime of a fund is 10 years, partners don't get the management fee for ten years. They get the fee until the fund is fully invested (usually 5-6 years).
2/ Money in is capital, money out is taxable income (unless it's carry, then it's a repayment of capital/capital gains). If the fund returns nothing, you lose your capital.
This creates following situation:
1/ 2% * 5 years is 10%, meaning as a partner you make 5% (probably a lot less, since you need to deduct expenses).
2/ Once we take into account taxes (let's say ~25% on $x), you are not making much, because your 10% becomes 7.5% after taxes.
But GPs can't invest 5% in a fund of a few billion $/€. Then again, you can't raise that kind of money without a track record, so maybe it doesn't matter.