TL;DR - VC fund structures vary based on strategy, age, and legal considerations.
Helpfulness - 4
Tags - law, fund structures, vc compensation, fund metrics, useful diagrams
- How are VC funds structured?
- How are VCs compensated?
- How do funds measure their performance?
- What factors drive differences in the way funds are structured?
- One “VC firm” is actually composed of several interconnected legal entities.
- Each fund includes a different set of entities that vary based on investor/fund manager preferences or legal considerations.
- Fund compensation is distributed by seniority, allocating both cash (management fees) and carry (profits) across the team.
- Performance metrics are dominated by multiples and rates of return.
- Funds tend to compare metrics across stage, industry, and vintage year.
Follow up links:
- Deeper look at the legal side of fund formation, https://www.msaworldwide.com/Naidech_PrivateEquityFundFormation_Nov11.pdf
- Example of VC metrics, https://files.pitchbook.com/website/files/pdf/PitchBook_2017_PE_VC_Fund_Performance_Report_as_of_4Q_2016.pdf
- More on governance, https://firstname.lastname@example.org/the-case-for-better-governance-at-venture-backed-companies-1a0c016436be