The article correctly outlines the basic structure of VC funds, with Limited Partners (LPs) providing capital and General Partners (GPs) managing investments. This structure is crucial for understanding the incentives and pressures in the VC ecosystem. LPs typically consist of institutional investors such as pension funds, endowments, and high-net-worth individuals who seek outsized returns. GPs, on the other hand, are responsible for identifying, investing in, and managing portfolio companies, and they do so with a high degree of autonomy. This dynamic shapes the fund's risk appetite and investment strategy. The 2/20 model (2% management fee, 20% carry) is standard in the industry. As a CFO, I'm acutely aware of how this model drives behavior and decision-making among VCs. The 2% management fee provides operational liquidity to the VC, covering salaries and administrative costs. The 20% carried interest (or carry) is the performance incentive that aligns the GP's interests with those of the LPs, promoting a focus on high-return investments. However, this setup can also lead to aggressive risk-taking as GPs aim for outsized exits to maximize their carry. The 10-year fund lifecycle with a 3-5 year investment period is typical. This timeline creates pressure for quick returns and influences investment strategies. A typical VC fund will aim to deploy committed capital within the first 3-5 years, subsequently reserving capital for follow-on investments to support portfolio companies through to exit. This lifecycle inherently favors investments with shorter time-to-exit horizons, such as B2B SaaS companies, that can scale quickly and attract acquisition interest. Performance metrics like IRR, DPI, and TVPI are central to evaluating VC fund success. IRR (Internal Rate of Return) measures the annual growth rate of investments, reflecting the efficiency of capital deployment. DPI (Distributions to Paid-In Capital) is a measure of cash returned to LPs relative to the amount invested, indicative of liquid returns. TVPI (Total Value to Paid-In Capital) combines DPI with the remaining value of portfolio holdings, offering a comprehensive view of fund performance. As a CFO, frequent monitoring of these metrics is essential for both internal strategy and reporting to LPs, ensuring transparency and fostering trust. Navigating these elements requires a keen understanding of financial operations, strategic planning, and investor relations, underscoring the importance of seasoned financial leadership in a VC environment. source : https://www.forbes.com/sites/melindaelmborg/2024/10/01/vc-math-explained-to-founders-the-high-stakes-game-of-startup-funding/