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Angels, Dragons and Vultures: How to Tame Your Investors And Not Lose Your Company by Simon Acland

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Profit shares

Venture capitalists can make a pretty satisfactory living from their management fees. Unlike the entrepreneurs they back, they do not generally have to worry about closing that new sale next month to keep cash flow going to pay their salaries. The venture capital fund management business model has the attraction of being unusually stable and predictable. But how do Vultures hope to get rich? The answer is through their profit share on successful funds. In the jargon this is called the “carried interest,” or “carry” for short. The normal way that carried interest works is that once a fund has returned its original cost to investors, typically plus a fixed annual return (a “hurdle rate”), the GPs receive 20% of the profits.

Supposedly ...

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