How VCs Really Get Paid

The Early - 10th Edition

Hi all! Hope everyone’s having a great week! As always, thanks all for following and for checking out the job board! Some exciting roles posted this week (a lot of internship positions 👀) and we also have more resources in the works 🙂

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💹 Today’s schedule:

• New VC Roles This Week 💫

• VC Comp: How Are VCs Really Paid? 🤔 

• Our Next Interview Guest!🤩

• Poll: Rate The Early 💭

• Refer a Friend 🙂

• Resources 📝

• Say Hi 👋

New VC Roles This Week 💫 

Internships 🤓 

• Summer Research Intern @ Chapter One (Remote) - Apply Here

• Senior Associate Intern @ MFV Partners (San Francisco, CA) - Apply Here

• Summer Analyst @ Thomson Reuters Ventures (New York, NY) - Apply Here

• 2024 Summer Venture Associate - US @ FinTech Collective (New York, NY) - Apply Here

• 2024 Summer Venture Associate - Europe @ FinTech Collective (London, UK) - Apply Here

• VC Fellow @ Nido Ventures (Remote) - Apply here by Mar. 31st

Analyst 😍 

• Venture Capital Analyst @ DVC (Remote/San Francisco, CA/New York, NY) - Apply Here

• Investment Analyst @ Giant Leap (Remote - Australia) - Apply here by April 21st

Associate/Senior Associate 😄 

• Associate at Gingerbread Capital (Remote) - Apply Here

• Associate at PLUS Capital (Los Angeles, CA) - Apply Here

• Investment Associate @ What If Ventures (Dallas, TX or New York, NY) - Apply Here 

• Venture Associate @ Capital Factory (Dallas, TX or Austin, TX) - Apply Here

Operational Roles 🤠 

• Chief of Staff/Associate @ Cowboy Ventures (Palo Alto, CA) - Apply Here

• Sr. Program Manager @ Kohler Ventures (Hybrid - New York, NY) - Apply Here

• Part-Time Content Creator @ Chapter One (Remote) - Apply Here

Roles Still Open From Last Week 🏃‍♀️ 

• Analyst/Associate @ Spero Ventures (Remote) - Apply Here

• Research Associate @ Forerunner Ventures (San Francisco, CA) - Apply Here

• Associate, Portfolio Ops @ ICONIQ Capital (Hybrid - San Francisco, CA) - Apply Here

• Investment Associate, AI & Enterprise @ Pear VC (San Francisco, CA) - Apply Here 

• Associate @ Wischoff Ventures (Remote - US) - Apply Here

• Summer Associate, Seed-Stage @ VSC Ventures (San Francisco, CA) - Apply Here

• Summer VC Associate @ Acumen (Hybrid - San Francisco, CA) - Apply Here

❗️ Note that many VC roles are posted without application deadlines and filled on a rolling basis - if you see one you like, I’d recommend applying within a week, or as soon as possible!

How VCs Are Paid 💵 

Today I wanted to walk through VC comp, which can be an opaque subject if you haven’t worked in the space. When I started, I didn’t have a clue how size of fund, returns, and fund structure all factor into how team members are paid. ⬇️ 

Many VC firms operate using a ‘2% and 20%’ structure. This means that, in a given fund, 2% of total AUM (assets under management) will be spent on management fees annually, and the investments team will also receive 20% of the total profits of the fund.

💡 To walk through an example of the 2% and 20% model:

If you have a $100M fund:

• ~2% of the fund - in this case, $2M - will be spent on management fees annually. Management fees cover the salaries of all team members, as well as other admin costs such as travel, hosting events, office costs, etc. So, if a fund has a lifecycle of 5 years during which capital is deployed, $10M of the total fund will go to management fees over its lifetime.

• In addition to the management fees (which, in this structure, are provided irrespective of performance), VC teams also receive 20% of the firm’s investment profits.

• So, if a $100M firm hits a 3x return (generates $300M from $100M,) you would first subtract $100M from the overall return, leaving you with $200M. The VC team would then receive 20% of this amount, or $40M, as their share of the profit. The remaining 80% will be allocated to the firm’s LPs (limited partners.)

Note: General partners typically contribute a percentage of their own capital to their fund to show they have skin in the game (typically ~2% of total fund size.) So, when raising a $100M fund, ~$2M may be contributed by the management team themselves.

Here is a great article from TechCrunch with details about different kinds of fund structures.

VC Fund Structure Q&A 💭 

💡 Are all investment team members required (or strongly encouraged) to contribute their own capital to their fund?

No. At the junior investor level, especially analyst and associate roles, investors are usually not expected to contribute their own capital. However, these positions often receive a smaller carry percentage. In my experience, investors will typically start contributing at the principal level and above (partner, managing partner, etc.) However, if you have the opportunity to put skin in the game, I would encourage doing so.

💡 Given this payment structure, should I join a larger fund (since management fees are higher in larger funds?)

Not necessarily. Though larger funds have more capital to work with, they also have bigger teams with more salaries to cover. As a result, comp varies widely depending on size of team, AUM, and geography. Personally, I would join the best team you can possibly find to learn from, even if it means a slightly lower base comp since VC is an apprenticeship model.

💡 What happens if the firm loses money/doesn’t have a positive return? Do VCs have to pay the difference?

VC teams don’t have to pay the difference for a poor-performing fund. Team members who contributed their own capital will be treated like an LP, with any available distributions going back to them first, but resulting in an overall loss on invested capital. Additionally, the management team will not receive any carry on the fund (which is where VCs make the majority of their money), since there are no profits to distribute.

This Week: Interview with Everett Sanderson 👏 

This week, I’m excited to be chatting with my friend Everett Sanderson, investor at City Light VC where he focuses on the climate, edtech, and healthcare sectors. After graduating from Cornell, Everett worked in investment banking prior to joining City Light. Ask Everett a question below 👇️ 

Poll: Rate the Early Newsletter 💭 

Refer a Friend 👭 

Enjoying the newsletter? Click the button below to refer a friend 🙂 

Resources 📝 

• Download my meeting notes template for VC/investment pitches 🧠

• Check out my previous post for a list of VC interview resources that I use!

• Take a look at the Early VC job board with roles updated twice weekly 🤓 

Say Hi! 👋 

And that’s all for this week! You can find me on LinkedIn, Instagram, and X. As always, feel free to reach out to [email protected] with any questions and/or feedback. I’d love to hear from you!🙂 

-Mic