From 3x Gross to 2x Net: How Much Venture Performance Is Lost Between the Fund and the LP?
Carta's 2025 fund economics analysis gives a useful market reference for fund-level leakage. Classic fee and carry terms remain common across venture funds. LP return analysis should start with the gross company result but end with the net LP result.
Carta reported that the median VC fund takes a 2% management fee and 20% carry across venture funds of all sizes.
Gross Returns Are Not LP Returns
The gap from 3x gross to 2x net can come from management fees, fund expenses, carried interest, timing, and the difference between invested company cost and total LP capital paid in. It is not a fixed market rule. Fund terms and cash flows decide the bridge. LPs should require a line-by-line reconciliation rather than accepting "fees and carry" as one unexplained adjustment.
Where Value Can Leave the Bridge
| Item | Effect | Question |
|---|---|---|
| Management fees | Reduce capital invested in companies | What is the base and step-down? |
| Fund expenses | Use LP capital without buying ownership | Which costs belong to the fund? |
| Carry | Shares profit with the manager | Whole-fund or deal-by-deal waterfall? |
| Timing | Lowers IRR when value takes longer | When does cash actually reach LPs? |
| Unrealized marks | May not convert to the reported value | How much of TVPI is still RVPI? |
MOIC Denominators Must Match
Gross MOIC usually divides portfolio value by company investment cost. Net MOIC divides LP value by paid-in capital. If some LP capital pays fees and expenses, the gross denominator is smaller. That difference can create a large gap even before carry. The return model should show paid-in capital, invested cost, gross proceeds, profit, carry, and net distributions.
Recycling Can Change Both Sides
Recycling early proceeds may increase the amount invested and improve the chance of a higher multiple. It may also delay distributions and reduce near-term DPI. The fund documents should state the limit, period, and which proceeds can be reused.
What LPs Should Request
- Gross company schedule: Cost, value, and proceeds.
- Fee and expense history: Actual cash, not only rate.
- Carry calculation: Legal waterfall and any clawback.
- DPI and RVPI: Cash versus remaining marks.
- Scenario bridge: Net result at several gross outcomes.
The gross-to-net gap should be explainable. Once the inputs are visible, the LP can judge whether the manager's gross performance is strong enough for the terms to produce an attractive net result.
Build the Bridge
If $100 million of invested cost produces $300 million of gross proceeds, gross MOIC is 3.0x. If $20 million of fees and expenses and $40 million of carry reduce LP value, net distributions fall to $240 million.
Carta reported that during the five-year investment period, the median fund above $100 million spends about 1% of total fund size on operating expenses, separate from management fees and carry.
Net Multiple Depends on the Denominator
Net returns use the LP's total paid-in capital. If the LP paid in $120 million including fees and expenses and receives $240 million, net MOIC is 2.0x. The same $240 million against only $100 million of invested cost would look like 2.4x, which is not the LP's full cash-on-cash result.
A $300 million gross outcome less $20 million of fees and expenses and $40 million of carry leaves $240 million of net LP distributions.
Illustrative 3x Gross to 2x Net Bridge
A fund can show 3.0x gross on invested cost while the LP receives 2.0x net on total paid-in capital.
View gross-to-net data and assumptions
| Item | Amount | Multiple implication |
|---|---|---|
| Invested cost | $100M | Gross denominator. |
| Gross proceeds | $300M | 3.0x gross MOIC. |
| Fees and expenses | -$20M | LP paid-in rises to $120M. |
| Carry | -$40M | Reduces distributions. |
| Net LP distributions | $240M | 2.0x net on $120M paid in. |
Questions LPs Should Ask About the Net Result
Use the metric to make a decision: commit, re-up, change the amount, pause, or ask for more evidence. Compare like with like: vintage, fund age, gross or net returns, DPI, and unrealized value all matter.
The Gap Changes Over the Life of the Fund
Gross and net returns can look far apart early because management fees and expenses are paid before the portfolio has had time to appreciate. Later, successful exits can narrow part of that early effect, while carried interest creates a new gap as profits grow. LPs should not explain the difference with one permanent haircut. The bridge should show invested company cost, total paid-in capital, fees paid to date, fund expenses, realized carry, accrued carry, and any recycled proceeds. Those items change at different speeds.
Tracking the bridge each year also makes manager comparisons fairer. Two funds with the same gross MOIC may deliver different net results because of timing, fee bases, recycling, or the share of value already realized. The legal terms and cash history decide the actual leakage.
Frequently Asked Questions
Is 3x gross always enough for 2x net?
No: It depends on fees, expenses, carry, timing, recycling, and the denominator used for the net calculation.
Should LPs ignore gross returns?
No: Gross returns help assess investment skill, but LPs need the net bridge to understand their actual outcome.