VC Funds 101: Understanding Venture Fund Structures, Team Compensation, Fund Metrics and Reporting by Ahmad Takatkah

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

Questions addressed:

  • 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?

Summary:

  • 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.

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