Free calculator · Fund Economics
The 2-and-20 Model, Fees & Carried Interest
Calculates lifetime management fees and carried interest for a venture fund, fees charged on committed capital plus carry on investment profit. Inputs are committed capital, the management fee rate, fund life, carried interest rate, and the gross return multiple.
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The 2-and-20 Model, Fees & Carried Interest
Annual management fee
$10M
certain, funds operations
Carried interest
$200M
at risk, rewards profit
Total fees (life)
$100M
fee × committed × years
Fees / committed
20%
the fee drag
Investment profit
$1.00B
gross return − committed
Net to LPs · the gross-to-net bridge
$1.20B (2.40×)
gross value $1.50B − fees $100M − carry $200M, a 3.0× gross fund is a 2.40× net fund
The fee is certain and flows to the management company; the carry is at risk and flows to the GP entity. The net-to-LP line is the bridge between them: LPs quote funds gross, but they are paid net. Metrick & Yasuda (2010) found that for the average fund most manager revenue comes from fees, not carry, carry is concentrated in the top funds.
Learn the concept
This calculator comes from the free Entrepreneurial Finance course, where the concept is taught with readings, worked examples, and practice questions.
Built by Devon Coombs, CPA, MBA, Teaching Professor of Finance at Santa Clara University.