A venture partner is a part-time team member of a venture capital firm, providing strategic, operating and portfolio support. Venture partners are experts in a field, and they are compensated with a share in the upside from venture capital firms, called carried interest.
Carried interest or carry is generated from the fund performance. Using carry as compensation aligns incentives since a venture partner only gets paid if the fund generates returns for the investors, called limited partners.
“Thousands of new Venture Partners are needed to fill the ranks of emerging venture capital firms worldwide.”
Adeo Ressi, CEO of VC Lab
More and more new venture capital firms are launching each year worldwide. These new managers rely on venture partners compensated with carry to do much of the work since they do not have enough management fees to pay salaries.
Venture Partner Compensation Standards
There have been no standards for venture partner compensation. Over the last year, the Founder Institute and VC Lab have surveyed hundreds of venture capital firms and experts in the field. This work resulted in a free legal template, called Venture Share, for venture capital firms to work with venture partners. Venture Share includes a set of carried interest compensation for different types of venture partners:
Here is how the chart works. There are five rows representing activities, such as Fundraising, and there are three columns representing the support level, such as helpling weekly. If a firm brings on a venture partner to help with fundraising on a weekly basis, then the recommended standard carry compensation is 4%. The Base, Middle and Advanced Carry levels also can be applied to seniority, so a very senior venture partner helping with fundraising weekly may be entitled to 6%.
Venture Partner Activites
The type of activity that a venture partner performs heavily affects the compensation levels.
- The Executive venture partner assists with the management of the VC firm and is often on track to become a partner in the firm in the next fund.
- The Fundraising venture partner assists the VC firm with fundraising activities, which normally lasts only one to two years.
- The Strategic venture partner provides the VC firm with credibility by providing their knowledge and expertise in an industry or subject matter.
- The Operating venture partner provides day-to-day assistance with activities related to the management and operations of the Fund, which may include marketing, accounting, finance, legal, diligence or other back office support.
- A Portfolio venture partner works on one or more deals where they are actively involved in the management of the investment.
Carry Compensation Math
It is also important to understand how carry works. Let’s say that there is a venture partner with 5% carry in a $10 MM fund, and the fund returns 3x. The fund has 20% carry from the limited partners. The fund returns $30 MM, and all returns over $10 MM have the carry of 20% deducted. So, we take 20% of the $20 MM, which is $4 MM, and we then take 5% of $4 MM for the venture partner, which is $200,000.
In this hypothetical, a 5% venture partner position will earn $200,000. Fund models commonly project between 5x and 7x, which is greater than the 3x returns in the example above. A venture partner will normally put in a few hours per week over a couple of years, and then get paid over ten years as portfolio companies exit in the fund.
You can learn more about compensating venture partners by reviewing the Venture Share agreement here. You can apply to be a venture partner at hundreds of venture capital firms by submitting one application here.
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This content is provided by VC Lab (https://GoVCLab.com), the venture capital accelerator.
The free 14 week VC Lab program provides guidance, structure and a network to complete a fund closing in 6 months or less. Since mid 2020, VC Lab has helped launch over 100 venture capital firms around the world.
Apply to Cohort 8 of VC Lab here (https://FI.co/apply/vc). The Final Admissions Deadline is Sunday, August 14th, 2022.
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