Thread by @Inc42

General Partners (GP) are the showrunners of a #VC firm. If they perform well, they can make big money. But if they lose, their career is over.

A 🧵on how do VCs make money…

#VCs make money in 2 ways:

1️⃣ Management Fee - typically 2% per annum of the total corpus across the fund lifecycle (10 years)

2️⃣ Carry - usually 20% of the profits generated after returning the initial capital of the investors

Let’s take the recent example of #IndiaQuotient👇

The Bangalore based VC firm returned its first fund of ₹32 Cr with a net multiple of 5.9x to its investors. Took them 9 years.

So 𝗳𝗼𝗿 𝗲𝘃𝗲𝗿𝘆 𝗜𝗡𝗥 𝟭 𝗖𝗿 𝗶𝗻𝘃𝗲𝘀𝘁𝗲𝗱 𝗶𝗻 𝘁𝗵𝗲 𝗳𝘂𝗻𝗱, 𝘁𝗵𝗲𝘆 𝗿𝗲𝘁𝘂𝗿𝗻𝗲𝗱 𝗜𝗡𝗥 𝟱.𝟵 𝗖𝗿 𝘁𝗼 𝘁𝗵𝗲𝗶𝗿 𝗟𝗣𝘀 🔥

👇

What did GPs potentially make?
(assuming standard management fee & carry)

Earnings from:

Management Fee = (2% of 32 Cr) * 9 years = INR 5.76 Cr
Carry = 20% of ((5.9 * 32 Cr) - 32 Cr) = INR 31.36 Cr

Total Earnings = INR 5.76 Cr + INR 31.36 Cr = INR 37.12 Cr

Cont…

So, the GPs of India Quotient potentially generated over INR 37 Cr as profits which they will now divide among themselves.

Note - This calculation gives you an upper limit of profits because it doesn’t include other expenses like team salaries, legal fees, etc.

Being a VC isn’t easy. It takes patience, perseverance and consistent evolution to succeed.

Congrats @IndiaQuotient for the success!

Cont..

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