Carry, short for "carried interest," represents the percentage of profits that are paid to the lead of a fund or SPV.
Leads can choose the amount of carry they receive when they launch a fund or SPV. 20% is typical.
Let's look at an example:
- Lead is charging 20% carry
- LP invests $5,000
- The company has a successful exit, and the distribution is worth $100,000
The lead will receive 20% of the amount the investor earned ($100,000-$5,000), which is 20% of $95,000 or $19,000. The investor will receive their initial investment ($5,000) plus the remainder of the earnings ($76,000), which nets out to $81,000.