Carry on net vs gross profits
Last updated
Quick Answer
Carry on net profits is calculated after fees and expenses; carry on gross profits is calculated before them.1,2
What it is
A net-profits formulation requires the fund's management fees, partnership expenses and realized losses to be recovered before profit is measured for carry purposes. A gross formulation measures profit on investment gains alone. The difference is a permanent transfer between the general partner and the limited partners over a fund's life.1,2
Operational context
What good looks like
Why It Matters
This single drafting choice can outweigh several points of carry, and it is decided in a definition rather than in the distribution waterfall itself.1
Term Family
Related concepts
Frequently Asked Questions
What is Carry on net vs gross profits in venture capital?
A net-profits formulation requires the fund's management fees, partnership expenses and realized losses to be recovered before profit is measured for carry purposes. A gross formulation measures profit on investment gains alone.
Why is Carry on net vs gross profits important for startups?
Understanding Carry on net vs gross profits is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
Sources & References
- 1.ilpa-principles-3 — ILPA Private Equity Principles 3.0 (2019)ILPA Private Equity Principles 3.0 (2019)ILPA(Carry on net profits is calculated after fees and expenses; carry on gross profits is calculated before them.)primary · T1 · carry-mechanics · term
- 2.metrick-yasuda — Metrick & Yasuda, *The Economics of Private Equity Funds* (Rev. Fin. Stud. 2010)Metrick & Yasuda, *The Economics of Private Equity Funds* (Rev. Fin. Stud. 2010)Wharton / Rodney White Center(Carry on net profits is calculated after fees and expenses; carry on gross profits is calculated before them.)secondary · T2 · carry-mechanics · term
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