Dear SaaStr: How Much Does The VC On My Board Make If We Sell for 1 Billion?

Q: Dear SaaStr: How Much Does The VC On My Board Make If We Sell for 1 Billion?

A lot, yes.  But often not as much as you might think. Each general partner might make $5m here on a $1B exit.

Let’s say you as a founder own 10% at a $1B exit, and a seed VC fund also owns 10%.  Now let’s say your startup later sells for an incredible $1 Billion (!) dollars — a jaw-dropping amount!

As a founder, you make ~$100m.  10% of $1B.  You might make a little more with retention payments and subsequent grants, or perhaps a bit less if you raise a ton of money and the preferences are high.  But $100m is a good rough estimate.

OK, now the fund here would get $100m, or 10% of $1B. But it’s a bit more nuanced for the partners in the fund, and the one that might be your lead investor:

  • Let’s say the fund invested $10m total.  Then the gain is $90m for this fund, but it might be much lower for funds that come in later rounds at the same ownership stake.
  • The partners at the VC fund split 20% of the $90m gain, once costs and amounts invested in the fund are all paid back. The other 80% goes to their “LPs”, the Limited Partners who invest in the venture fund and provide most of its capital.
  • Let’s assume the fund has 3 partners and 2 associates, and each partner has 28% of the “carry”, i.e. each of the 3 main partners keeps 28% of the total gains (the splits can vary widely, but this is a basic assumption). Then each partner makes 28% x $18m or $5m off this unicorn.
  • And this $5m is only received once the fund has paid back all the money its been given to invest.  So it’s entirely possible, or even likely, the VC partners might get paid years after the founders do.

Now $5m is a lot of money. But maybe not as much as you might think for a general partner at a VC fund to make off a $1,000,000,000 exit.

(note: I’ve oversimplified a lot, because flows of capital in VC are complex, but the above answer is still pretty much accurate for a startup that doesn’t raise a massive amount of capital)

A bit more here:

Dear SaaStr: VCs or Founders: Who Makes More?

Published on January 15, 2022

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