Carried interest is a right that entitles the general partner or GP of a private investment to a share of the fund's profits. First, investors in private equity funds have return expectations of 15% or more (higher for venture capital), and the preferred return allows LPs to achieve this “minimum return” before the GP can take any profit participation (carry). In practice, carry can be a bit more complicated depending on a transaction's equity structure (e.g., preferred vs. common vs. hybrid securities), but the general idea of carry remains the same. Typically, carry is earned after the investors (or limited partners) receive their invested capital back. Carry is the profit share that the General Partner of a fund receives when portfolio companies are sold. The carry is the GP’s share of any profits realized by the fund’s investors, and can run from 15% to 30% but will typically be 20%. It can be on the deal basis that earned on every deal or on whole fund basis. Typically, for a private equity or hedge fund, GP is itself a partnership that is owned by investment managers and usually contributes between 1 to 5 percent of the fund's initial capital and commits to managing the funds assets. This is the most important of total remuneration earned by Fund manager. The required percent ownership at that time must be $26.6/$37.5, or 70.9%. 804-042 The Basic Venture Capital Formula 2 For the VC to receive the required $26.6 million in year 5 out of the $37.5 million terminal value, he will have to own a corresponding portion of the company’s stock. Carried interest also known as “carry” is the share of profit earned by a Private equity fund or fund manager on the exit of investment done by the fund. This aligns the interests of the GP with the LPs – LPs must earn a minimum return before the GP can take carry.