Definition
The VC's cut of investment profits, typically 20% of gains above a certain return threshold. How general partners get rich while limited partners provide the actual money—the ultimate performance fee.
Example Usage
After the fund returned 3x, the partners took $60M in carried interest on top of their management fees.
Origin
Term dates to 16th century shipping, where ship captains received a 'carry' of cargo profits; adopted by private equity in the 1970s
Fun Fact
Carried interest is taxed as capital gains rather than income, a controversial tax treatment that's been debated in Congress for decades and saves top VCs millions annually.
Source: Private equity and venture capital fund documentation
Related Terms
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See “carried interest” in Corporate Speak, Gen-Z Slang, Pirate Speak, and more.
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