Compensation in Private Fund Formation

In this video, Jake Denham explains how compensation works in a typical venture capital fund by looking at three key players: the Manager, the Limited Partners (LPs), and the General Partner (GP). He discusses how the Manager, usually the management company, earns an annual management fee to operate the fund and pay the team. He also covers how LPs, the investors who provide the capital, are paid back first and then share in any profits. Finally, we explain how GPs, who make the investment decisions, are typically compensated through carried interest, meaning they only earn a share of the profits after the LPs receive their capital back. Understanding this structure helps explain how incentives are aligned within a venture fund and why getting the structure right is critical when launching a fund.