Why 3x Gross Produces a Lower Net Return
To pay LPs 3x net, the portfolio must earn more than 3x gross. Fees, expenses and the manager's share of profit reduce what LPs receive. How much more the fund needs depends on its terms and when it invests and exits.
Gross MOIC compares company value with the money actually invested in companies. Net MOIC compares what the LP receives with the capital the LP paid into the fund. Fees reduce the amount that reaches the portfolio, and carry then shares part of the profit with the manager. These deductions make the net multiple lower than the gross multiple.
The Gross Return Behind the Net Target
A 3x net result on a $100 million fund requires $300 million of value for LPs. That is the destination. The gross-to-net bridge works backwards to determine what the portfolio must produce.
Suppose $10 million of the fund is used for fees and expenses. Only $90 million is invested in companies. The portfolio must now create the LP's $300 million result from a smaller cost base, while also generating enough profit to pay carried interest.
A Portfolio Returning 3x Gross
If the $90 million portfolio returns three times cost, it produces $270 million. That is only 2.7 times the $100 million paid in by LPs even before carry. The portfolio has created $180 million of profit above invested cost.
With a simplified 20% carry, $36 million of that profit goes to the manager. The LPs are left with $234 million, or 2.34x their $100 million paid-in capital. The exact waterfall may change the timing, but the example shows why the gross multiple falls so sharply on its way to net.
The Proceeds Required for 3x Net
Under the same assumptions, $352.5 million of gross proceeds creates $262.5 million of profit over the $90 million portfolio cost. Carry takes $52.5 million, leaving $300 million for LPs. The portfolio has produced 3.92x gross MOIC so that LPs can receive 3.0x net.
The 3.92x result follows from this example's assumptions. Different fees, expenses or carry change the gross hurdle, which is why the calculation behind a rule of thumb matters.
Market Conditions Affect Whether the Bridge Can Become Cash
The 2026 NVCA Yearbook reported $67 billion of US VC fundraising in 2025, the lowest level in nine years. That figure does not change the arithmetic above. It does show how different the capital environment can look by the time a fund needs follow-on financing or an exit.
The same source reported $217 billion of US VC exit value in 2025—twice the 2024 level, yet only 27% of the 2021 peak. A net target built mainly on unrealized marks may therefore take much longer to turn into distributions.
The portfolio plan determines whether the required gross return is plausible. Ownership, exit values and timing together support or weaken that target.
The example uses a $100 million fund with $10 million of fees and expenses. Invested portfolio cost equals $90 million and carry equals 20%. Gross proceeds of $352.5 million then leave $300 million of net LP distributions.
Gross-To-Net Requirement
A 3.0x net LP result can require roughly 3.92x gross MOIC on invested cost once fees and 20% carry are separated.
View bridge data and assumptions
| Item | Amount | Assumption |
|---|---|---|
| LP paid-in capital | $100.0M | Denominator for the 3.0x net LP target. |
| Fees and expenses | -$10.0M | Illustrative 10% aggregate fund-level cost. |
| Invested portfolio cost | $90.0M | $100M paid-in capital less $10M of fees and expenses. |
| Gross portfolio proceeds | $352.5M | 3.92x gross MOIC on $90M of invested portfolio cost. |
| Gross profit | $262.5M | $352.5M of proceeds less $90M of invested portfolio cost. |
| Carry | -$52.5M | 20% of $262.5M gross profit, with no hurdle or catch-up. |
| Net LP distributions | $300.0M | 3.0x net MOIC on $100M of LP paid-in capital. |
Actual Fund Terms Change the Illustration
This example simplifies carry. A real fund's fee schedule, charged costs, GP investment, recycling rules and payout order determine its own gross-to-net result.
Each deduction explains part of the gap. Clear steps make funds easier to compare because similar labels can hide different fee and carry rules.
Multiple, Timing and Realization Differ
A 3x net multiple received in six years differs from the same multiple received in twelve. MOIC shows how much value was created. IRR also accounts for when money went in and came back. LPs need both for a full view.
DPI is cash distributed; remaining value depends on unsold holdings. A recent round can support high TVPI without proving the fund can sell at that price. The gross-to-net calculation therefore contains both realized proceeds and value still awaiting an exit.
Questions to Put Beside the Target
- How much LP capital is expected to reach company investments?
- What fee and expense schedule produces that figure?
- How does the carry waterfall change the LP result?
- How much of the target depends on unrealized value?
- When is the cash expected to reach investors?
The model shows the range of portfolio outcomes that the fund's own terms must convert into a 3x net result. That is more useful than treating one gross hurdle as permanent.
Frequently Asked Questions
Is 3x gross enough for 3x net?
A 3x gross portfolio will usually fall short of 3x net once fees, expenses and carry are applied. Any discount to unrealised marks can widen the gap further.
Should LPs focus on gross MOIC or net MOIC?
Both answer different questions. Gross MOIC tests the investment portfolio; net MOIC shows what the LP receives after the fund economics.