Compensation models in Venture Capital Partnerships

MA-Thesis / Master von Christian Schön

Abstract:

Private Equity and Venture Capital have become an important factor in corporate finance and has returned high profits to investors and fund managers. This papers gives an overview of the structure of venture capital partnerships and their sources of income - specifically management fees and carried interest. A venture capital fund model explains the financial in- and outflows over the lifetime of a venture capital fund and the distribution to general and limited partners and the management.

Table of Contents:

1.	Introduction	2
2.	Overview of worldwide venture capital markets	4
2.1	Long term development	5
2.2	Key drivers for the Development	6
3.	Performance of Venture Capital Funds	8
3.1	Dependence on vintage year	9
3.2	Latest developments and outlook	10
4.	Venture Capital Partnerships	13
4.1	The Structure of Venture Capital Backed Investments	14
4.2	Sources of income for VC-management companies	15
4.3	Why Is Carried Interest So Important in Private Equity?	16
5.	Income model for the management company	18
6.	Discussion of the impact of different compensation principles	21
6.1	Management Fees	21
6.2	Carried Interest	23
6.3	Total compensation of general partners	25
7.	How the management does participate	27
8.	Conclusions and new trends	30
9.	References	33
10.	Glossary	34