The Two Multiples Begin With Different Capital
The gap between 3x gross and 2x net performance comes from more than one deduction. Management fees and fund expenses reduce the capital invested, carried interest shares the profit, and the timing of those cash flows affects the LP's realized result. Gross and net multiples therefore measure different stages of the fund economics.
Gross MOIC usually compares company value with the money invested in those companies. Net MOIC compares value delivered to LPs with all the cash they paid into the fund. Some LP cash pays fees and costs. The two multiples therefore start with different bases.
A Simple Path From Company Proceeds to the LP
Suppose $100 million invested in companies produces $300 million of gross proceeds, or 3.0x gross. LPs also paid $20 million for upfront fees and expenses. In this example, a further cost bill of the same size is paid from exit proceeds. After that bill and $40 million of carry, LPs receive $240 million.
The LP paid in $120 million and received $240 million, which is 2.0x net. Comparing the same $240 million only with the $100 million invested cost would produce 2.4x, but that would ignore part of the LP's actual cash outlay.
The move from 3x gross to 2x net has two sides. Carry and costs paid from proceeds reduce cash returned. Upfront fees and expenses increase LP contributions above the amount invested in companies. Each charge enters once, according to when it is paid.
Market Terms Explain the Direction; Fund Terms Explain the Gap
Carta's 2025 fund economics analysis reported a median 2% management fee and 20% carry across venture funds of all sizes. These familiar terms help explain why gross and net results diverge, but they do not determine the bridge for a particular fund.
Carta also reported that, during the five-year investment period, the median fund above $100 million spends about 1% of total fund size on operating expenses. Those expenses sit apart from management fees and carry.
Actual leakage depends on the fee base and step-down. The expense policy matters, as does the legal carry waterfall. Two venture funds with the same gross result can therefore deliver different net outcomes.
Timing Changes the Story Again
MOIC shows how much value exists, while IRR supplies the time dimension. A delayed distribution can leave the multiple unchanged while reducing IRR.
Recycling creates another trade-off. Reinvesting early proceeds may put more capital into companies and improve the final multiple. The trade-off is later DPI because cash that could have been distributed remains inside the fund.
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 | These costs come out at exit. Separate upfront costs bring LP paid-in to $120M. |
| Carry | -$40M | Reduces distributions. |
| Net LP distributions | $240M | 2.0x net on $120M paid in. |
What Explains the Net Result?
The waterfall illustrates how the amounts connect. A fund's actual cash flows and legal terms determine its own result. Fees, carry and other costs develop at different rates, so that gap can change over time.
Early in a fund's life, fees may create a wide gap before the portfolio has appreciated. Later, strong exits can overcome some of that effect while accrued carry creates another difference. The share of value still unrealized also determines how firm the result is.
- Invested cost can be lower than total paid-in capital because LPs also fund costs.
- Management fees and fund expenses create distinct charges.
- Realized carry has been paid, while accrued carry reflects an amount recognized but not yet paid.
- Recycled proceeds remain available for investment and affect cash distributions measured by DPI.
- Distributions are cash returned; remaining marks describe value still held.
Together, these amounts show how much of the portfolio return survives fees and carry. Identified costs and timing effects explain the gross-to-net gap.
Frequently Asked Questions
Is 3x gross always enough for 2x net?
A 3x gross result can lead to different net returns. Each fund has its own fee base and carry terms. Cash-flow timing, reinvested proceeds and the capital counted in the multiple also affect the result.
Should LPs ignore gross returns?
Gross returns describe the manager's company choices. Fund costs and cash-flow timing connect that result with what the LP actually receives.