Full Carry

See: Carry. And just think: the star of Ace Ventura after he finishes a large meal.

The notion of "full" here is a Thing. That is, for many private investment firms, especially in venture capital, there is a time-hurdle that gets placed in the term or deal sheets. That is, if the fund compounds in value above, say, 18% a year, then it received 25% or full carry. If it compounds at less than that rate, then it only gets 20% as carry, or partial carry.

Why is this format in place? Well, venture deals often take decades to really work out, and the time value of money is a Thing. So investors, who would always have the option of just putting their money in a publicly traded index fund which has compounded at historical rates of, say, 10% a year, might just do that instead of bearing the much higher risk (and real risk of negative 100% returns) of rolling the dice in VentureLand.

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Finance: What is carry?2 Views

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And finance Allah shmoop What is Carrie shmoop Ah the

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Holy Grail The warmth of the wealth The golden ring

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worth fighting for That's what it is Partners in an

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investment firm who get quote kari unquote for their investing

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efforts essentially carry out of the office loads and loads

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and loads of dough Well how does this magic happen

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Well here's the math explanation You're one of three partners

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at Joe Bob and Sill Ease Venture Capital Shop You

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have five hundred million bucks under management under a two

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and twenty five structure That is you get two per

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cent of that money per year as fees just kind

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of managed company And then you also get twenty five

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percent of profits from that fund Those profits are your

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carry questions How do you calculate them Yourjob to invest

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that five hundred million dollars and make money for your

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shareholders Your limited partners as they're called and you three

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here are the general partners so you go along investing

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and you take ten mil a year in fees and

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that two percent of the five hundred mill and those

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fees cover the salaries and small bonuses to the dozen

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or so junior partners you have all Stanford MBA is

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running around like chickens with their heads cut off squawking

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for hot deals and cold calling CEOs of private companies

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They bring you those deals and you say yea or

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nay The two percent of your fee also covers you

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know secretaries and rent and insurance and travel and conference

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going in lawyers in an end So five years go

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by and you've taken out ten mil a year in

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fees each year for a total of fifty million dollars

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As you've invested the remaining four hundred fifty million dollars

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right you made eighty investments total Fifty of them went

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totally bankrupt On twenty of them You got your money

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back and on ten you made an average of while

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twenty times your money or thereabouts Not all of the

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investments were the same amounts but the result was that

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on your four hundred fifty million dollars of actual infesting

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you turned that money into two billion dollars When those

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hot cos you funded early in their existence went public

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in a night Pio and then six months and a

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week later you distributed the shares you had in them

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so the profit calculation is based on the original five

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hundred million You Ray's not the fifty million of expenses

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you had while administering the fund So on exactly two

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billion dollars of realized profits you had one point five

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billion dollars of profits Meaning you sit behind that fifty

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million and expenses that's on you baby And no in

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the venture capital world ofthe most nobody cares whether it

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took you three years or six years or twenty years

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to make those profits There is oddly little attention paid

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to the time value of money in that world at

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least in Silicon Valley So on that one point five

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billion dollars your Carrie was twenty five percent or three

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hundred seventy five million dollars You split it three ways

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with your partners and each of you takes out a

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cool hundred twenty five mil Even cooler you have likely

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raised a new fund every two or three years So

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you get these waves of dough coming in every few

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years at least regularly And then after enough years of

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doing this business while you get to buy one of

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these yeah that's Carrie

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