The VC Industry�and Fund Economics
FIN143
Limited partners, general partners, and the waterfall between them
Devon Coombs CPA, MBA
Santa Clara University | Fall 2026
Why founders need to understand the fund
A venture investor makes decisions for a portfolio of companies and a�group of capital providers.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
02
A $100 million fund returns $300 million
Hypothetical: LPs contribute $100 million. The fund distributes $300�million after all investments are realized. Ignore fees, expenses, taxes,�GP capital, and preferred returns; carry is 20% of profit.
Allocation | Amount |
LP capital returned | $100 million |
Profit to LPs: 80% × $200 million | $160 million |
Carried interest to GP: 20% × $200 million | $40 million |
Total distributed | $300 million |
LPs receive $260 million; the GP receives $40 million. Carry applies�to profit, after returning capital.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
03
VC is part of private equity
Venture capital finances young companies with substantial growth potential. It�is one strategy within the broader private-equity universe.
Buyouts typically acquire control of established businesses. Public equity�consists of shares traded in public markets.
The NVCA 2026 Yearbook reports over $1 trillion of U.S. VC assets under�management, with the AUM series dated June 30, 2025. AUM includes�remaining investment value and uncalled commitments; it is not annual�investment volume.
At industry scale, VC is much smaller than the broader private-equity universe�and U.S. public-equity markets. Fund AUM and public-market capitalization use�different measures; precise comparisons require aligned dates and definitions.
NVCA 2026 Yearbook, U.S. VC AUM chart, printed p. 12; PitchBook, 2025 Annual US PE Breakdown, AUM, p. 33; SIFMA, 2026 Capital Markets Fact Book findings,�U.S. equity-market size.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
04
Venture capital and buyouts�use different investment models
Dimension | Venture capital | Buyouts |
Typical�ownership | Minority stake | Controlling stake |
Typical�company | Young; growth and�business-model uncertainty | Established; operating cash�flow often supports the thesis |
Acquisition�debt | Generally not used to�finance the equity purchase | Often an important financing�component |
Main value�drivers | Growth, ownership retained,�and exit value | Operating improvement,�growth, financing, and exit�value |
These are common patterns, not universal rules. Either strategy can lose�capital; buyout outcomes are not automatically predictable.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
05
Knowledge check: classify the investment
An investor buys a 15% stake in a young software company to fund�growth. No acquisition debt is used. Which classification is best�supported?
A. A buyout, because the company is privately held.
B. Venture capital, reflecting its stage and minority ownership.
C. A public-equity investment, because ownership is expressed as a�percentage.
D. A buyout, because the investor can negotiate governance rights.
E. Insufficient information unless the investor’s management fee is�known.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
06
W7-S006
143
Easy (1/8)
Knowledge check: classify the investment — Answer
Correct answer: B — Venture capital, reflecting its stage and�minority ownership.
Why: The described ownership, company stage, and financing fit the�common VC model.
Other choices: A confuses all private equity with buyouts. C confuses�private shares with listed shares. D treats governance rights as control.�E makes fee terms determine investment strategy.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
07
W7-S006
143
Easy (1/8)
The fund, the manager, and the investors
These are economic roles, not a rule that every fund has exactly three�legal entities. The limited partnership agreement (LPA) sets the terms.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
08
A commitment is a promise; a capital call funds it
Term | Meaning |
Committed capital | Amount an investor has agreed to provide |
Capital call | Fund’s request for a contribution |
Paid-in / contributed�capital | Amount actually paid to the fund |
Invested capital | Amount deployed into portfolio investments |
Uncalled commitment | Agreed capital not yet called |
Hypothetical: LPs commit $100 million and fund a $30 million call. The�fund invests $28 million and pays $2 million of fees and expenses.
Paid-in capital is $30 million; uncalled commitments are $70 million.�Fees consume capital but do not create portfolio investments.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
09
Knowledge check: follow the money through the entities
Assumptions: Use the taught structure; carry goes directly to the GP,�with no separate carry vehicle.
A fund buys startup shares, pays a management fee, and later�allocates carry. Which mapping correctly identifies the investment�owner, fee recipient, and carry recipient?
A. Owner: fund; fee: management company; carry: GP.
B. Owner: GP; fee: management company; carry: fund.
C. Owner: management company; fee: GP; carry: fund.
D. Owner: fund; fee: GP; carry: management company.
E. Owner: management company; fee: fund; carry: GP.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
10
W7-S010
143
Easy (0/8)
Knowledge check: follow the money�through the entities — Answer
Correct answer: A — Owner: fund; fee: management company;�carry: GP.
Why: The fund owns the investments. The management company�earns the operating fee. In this structure, the GP receives carry.�Control of investment decisions does not make the GP the investment�owner.
Other choices: B confuses control with ownership and assigns carry�to the fund. C assigns all three roles incorrectly. D swaps fees and�carry. E confuses the operating business with the fund vehicle.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
11
W7-S010
143
Easy (0/8)
Fees, carry, and GP capital are different cash flows
“2 and 20” is shorthand for an illustrative 2% management fee and 20%�carry. It does not specify fee bases, fee step-downs, a hurdle, or when�carry is paid.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
12
A fee rate needs a base and a period
Hypothetical fee schedule; no offsets or waivers:
Period | Annual rate | Contractual fee�base | Annual fee |
Investment�period | 2.0% | $100 million�committed | $2.0 million |
Later period | 1.5% | $60 million�remaining�investment cost | $0.9 million |
Annual fee = annual rate × applicable fee base.
The LPA determines step-downs, exclusions, and offsets. Multiplying�the initial fee by ten years can misstate lifetime fees.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
13
Knowledge check: annual management fee
A $500M fund charges a 2% annual management fee on committed�capital. What is the annual fee?
A. $5 million
B. $10 million
C. $1 million
D. $20 million
E. $100 million
Devon Coombs CPA, MBA · Santa Clara University · FIN143
14
W7-S014
143
Easy (2/8)
Knowledge check: annual management fee — Answer
Correct answer: B — $10 million
Why: $500 million × 2% = $10 million for the year in which that rate�and base apply.
Other choices: A uses 1%; C uses 0.2%; D uses 4%; E uses 20%. Carry�and management fees use different rates and bases.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
15
W7-S014
143
Easy (2/8)
Knowledge check: capital available to invest
Assumptions: No other calls, distributions, recycling, or commitment�changes.
LPs commit $120 million and fund a $45 million call. The fund invests�$42 million and pays $3 million of fees and expenses. What are paid-in�capital and uncalled commitments?
A. Paid-in: $42 million; uncalled: $75 million.
B. Paid-in: $45 million; uncalled: $78 million.
C. Paid-in: $120 million; uncalled: $0 million.
D. Paid-in: $45 million; uncalled: $75 million.
E. Paid-in: $42 million; uncalled: $78 million.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
16
W7-S016
143
Medium (3/8)
Knowledge check: capital available to invest — Answer
Correct answer: D — Paid-in: $45 million; uncalled: $75 million.
Why: LPs contributed the full $45 million, including the $3 million�spent on fees. Uncalled commitments are $120 million − $45 million =�$75 million.
Other choices: A excludes funded fees from paid-in capital. B�subtracts investment spending instead of the call. C treats the�commitment as fully funded. E makes both fee-related errors.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
17
W7-S016
143
Medium (3/8)
What Metrick and Yasuda found about manager revenue
Metrick and Yasuda (2010) modeled expected manager revenue for�238 funds raised during 1993–2006.
These are historical estimates of manager revenue, before operating�costs. They do not establish current market prevalence, realized�partner pay, or that every VC fund has an 8% hurdle.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
18
Knowledge check: manager incentives
Assumptions: Both fee�schedules are in effect for a�full year, without offsets or�waivers.
A manager raises a $200�million successor fund after�a $100 million fund. Each�charges 2% annually on�commitments. Comparing�their initial annual fee�streams, which conclusion is�supported before�investment results are�known?
A. The successor’s annual fee is $2m higher;�carry and partner pay remain uncertain.
B. The successor’s fee is $2m higher; partner�compensation increases by the same�amount.
C. The successor’s fee stays unchanged until�its investments produce a realized profit.
D. The successor’s fee is $4m higher,�reflecting the fee on the larger fund.
E. The successor’s fee stays unchanged�because the additional commitments are not�yet invested.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
19
W7-S019
143
Medium (3/8)
Knowledge check: manager incentives — Answer
Correct answer: A — The successor’s annual fee is $2m higher; carry�and partner pay remain uncertain.
Why: The fee streams are $4 million and $2 million annually, a $2�million difference. Revenue is before operating costs; partner pay�depends on compensation arrangements. Carry still depends on�eligible profits.
Other choices: B treats revenue as take-home pay. C applies a carry�condition to fees. D confuses the new fee level with its increase. E�substitutes invested capital for the stated commitment base.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
20
W7-S019
143
Medium (3/8)
Company proceeds and fund proceeds�follow different waterfalls
Company exit waterfall: distributes a company’s sale proceeds�among its shareholders under share-class rights and liquidation�preferences.
Fund distribution waterfall: allocates the fund’s distributable�proceeds between its LPs and the GP under the LPA.
Company sale → fund receives its shareholder proceeds → fund pays�or reserves for obligations → fund allocates distributable cash to LPs�and GP.
A preferred shareholder’s liquidation preference and an LP’s preferred�return operate at different levels.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
21
Knowledge check: identify the correct waterfall
A startup is sold. Its preferred shareholders first receive proceeds under the�company’s charter. The VC fund then allocates its receipts to LPs and the GP.�Which statement is correct?
A. The company’s liquidation preference determines the fund’s carried-interest�percentage.
B. The LP preferred return ranks ahead of the startup’s preferred shares at the�company sale.
C. Company security terms allocate the exit proceeds; fund terms allocate the�fund’s distributions.
D. The GP’s carry is deducted from all shareholders’ proceeds before company�preferences apply.
E. An 80/20 fund split means founders keep 80% of the company’s sale�proceeds.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
22
W7-S022
143
Easy (1/8)
Knowledge check: identify the correct waterfall — Answer
Correct answer: C — Company security terms allocate the exit�proceeds; fund terms allocate the fund’s distributions.
Why: The company’s charter governs shareholder rights. The fund’s�LPA governs the separate distribution to capital providers and the GP.
Other choices: A and D move fund economics into the company�waterfall. B inserts an LP fund priority into the company’s shareholder�ranking. E confuses fund profit sharing with founder ownership.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
23
W7-S022
143
Easy (1/8)
Knowledge check: carry on profit
Assumptions: The $100M is entirely LP paid-in capital; $300M is�distributable proceeds. No fees, taxes, GP capital, or interim�distributions.
A $100M fund returns $300M with no preferred return. Using a 20%�carry, how much does the GP receive?
A. $60M, taking 20% of the $300M returned
B. $20M, taking 10% of the fund's profit
C. $40M, 20% of the $200M profit
D. $0, because VC charges no carry
E. $100M, the entire profit above capital
Devon Coombs CPA, MBA · Santa Clara University · FIN143
24
W7-S024
143
Easy (2/8)
Knowledge check: carry on profit — Answer
Correct answer: C — $40M, 20% of the $200M profit
Why: With $100 million of contributed capital and $300 million of final�proceeds, profit is $200 million. Carry is 20% × $200 million = $40�million; LPs receive $260 million.
Other choices: A charges carry on proceeds. B uses the wrong carry�rate. D contradicts the stated terms. E misstates both the amount of�profit and the GP’s share.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
25
W7-S024
143
Easy (2/8)
Four possible tiers in a fund waterfall
Order | Tier | What happens in this teaching model |
1 | Return capital | LPs recover contributed capital |
2 | Preferred�return | LPs receive an accrued priority return |
3 | GP catch-up | GP receives an accelerated allocation�until the agreed profit share is reached |
4 | Residual split | Remaining profit is divided 80% to LPs /�20% to GP |
Not every fund has all four tiers. The LPA specifies eligible costs,�timing, and percentages. Apply the waterfall to distributable cash after�obligations are addressed.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
26
Preferred return: a priority, with a clock
A preferred return gives LPs priority over carry on the defined capital�base. It is not a guarantee that the fund can pay it.
Hypothetical: $100 million contributed at the start; no interim�distributions; 8% annually compounded preferred return.
Different contribution dates, repayments, compounding rules, or�eligible capital change the result. “8%” alone does not determine a�dollar amount.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
27
Knowledge check: what does the preferred return promise?
Assumptions: All investments realized; distribute all available cash; no fees,�taxes, GP capital, or guarantees.
LPs contribute $100 million at the start of a fund. Exactly one year later, only�$106 million is available. Capital is returned first, then an 8% preferred�return, then carry. What happens?
A. LPs: $108 million; GP funds the missing $2 million of preferred return.
B. LPs: $104.8 million; GP: $1.2 million, sharing the profit at 80/20.
C. LPs: $100 million; GP: $6 million, allocating the profit to catch-up.
D. LPs: $100 million; GP: $0; retain $6 million until the preference can be�paid fully.
E. LPs: $106 million; GP: $0; the preferred return is partly paid.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
28
W7-S028
143
Medium (4/8)
Knowledge check: what does the�preferred return promise? — Answer
Correct answer: E — LPs: $106 million; GP: $0; the preferred return�is partly paid.
Why: Available cash pays $100 million of capital and $6 million of the�$8 million priority return. The carry tiers have not been reached.
Other choices: A promises unavailable cash. B skips the�preferred-return priority. C starts catch-up too early. D mistakes a�distribution priority for a prohibition on partial distributions.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
29
W7-S028
143
Medium (4/8)
A 100% GP catch-up is a temporary allocation
After LPs receive their preferred return, 100% of the next dollars goes�to the GP until the GP has 20% of profit distributed so far.
With an $8 million LP preferred return and a 20% carry target:
Catch-up / ($8 million + catch-up) = 20%
Catch-up = 20% / 80% × $8 million = $2 million.
The GP then has $2 million of $10 million profit distributed. Later profit�is split 80/20. A 100% catch-up rate does not mean 100% final carry.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
30
Worked waterfall: $100 million becomes $130 million
Hypothetical: $100 million LP capital at time zero; $130 million�distributed exactly one year later; 8% preferred return; 100% GP�catch-up; 20% carry. No fees, taxes, GP capital, or interim distributions.
Tier | LP receives | GP receives | Cash remaining |
Return capital | $100m | $0m | $30m |
Pay preferred return | $8m | $0m | $22m |
Complete catch-up | $0m | $2m | $20m |
Split remaining $20m at�80/20 | $16m | $4m | $0m |
Total | $124m | $6m | |
Check: $124m + $6m = $130m; GP carry is 20% of the $30m profit.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
31
Knowledge check: apply all four tiers
Assumptions: Return LP capital first; no fees, taxes, GP capital, or�interim distributions.
LPs contribute $120m at time zero. At year one, $150m is distributable:�capital first, 10% preference, 100% GP catch-up, then 80% LP / 20%�GP. Which catch-up amount and final totals are correct?
A. Catch-up $0m; LP total $146.4m; GP total $3.6m.
B. Catch-up $3m; LP total $144m; GP total $6m.
C. Catch-up $2.4m; LP total $144m; GP total $6m.
D. Catch-up $3m; LP total $141m; GP total $9m.
E. Catch-up $3m; LP total $147m; GP total $3m.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
32
W7-S032
143
Hard (7/8)
Knowledge check: apply all four tiers — Answer
Correct answer: B — Catch-up $3m; LP total $144m; GP total $6m.
Why: Preference is $12m. Catch-up is $3m because $3m / ($12m +�$3m) = 20%. After $120m capital, $12m preference, and $3m�catch-up, the remaining $15m splits $12m / $3m. Final totals: LPs�$144m; GP $6m.
Other choices: A omits catch-up. C pairs correct final totals with an�incorrect catch-up: 20% of the preference alone. D adds catch-up on�top of final 20% carry. E omits residual carry.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
33
W7-S032
143
Hard (7/8)
Preferred return with staggered capital calls
Hypothetical: LPs contribute $60m at time zero and $40m one year�later. All $140m of proceeds are distributed at the end of year two. No�interim distributions, fees, taxes, or GP capital.
At an 8% annually compounded preference:
With 100% GP catch-up and 20% carry, catch-up is $3.296m. The�remaining $23.520m splits $18.816m / $4.704m.
Final totals: LPs $132m; GP $8m. Capital dates matter even when full�catch-up ultimately restores the 80/20 profit split.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
34
Question: Preferred return and full catch-up
KNOWLEDGE CHECK
A fund has the following cash timeline:
Date | Event |
Start of Year 1, time 0 | LPs contribute $60 million |
Start of Year 2, time 1 | LPs contribute another $40 million |
End of Year 3, time 3 | Fund has $136 million available for its final distribution,�after fees and expenses but before GP carry |
There are no interim distributions or GP capital contributions. The whole-fund�waterfall applies in this order:
For the catch-up test, distributed profit includes LP preferred return and GP�catch-up, but excludes returned capital.
What are the LP preferred return in tier 2 and the amount paid specifically in�the GP catch-up tier? Round to $0.001 million.
A. LP preferred return:�$25.971 million; GP�catch-up tier: $6.493�million.
B. LP preferred return:�$16.640 million; GP�catch-up tier: $4.160�million.
C. LP preferred return:�$20.800 million; GP�catch-up tier: $5.200�million.
D. LP preferred return:�$22.239 million; GP�catch-up tier: $5.560�million.
E. LP preferred return:�$22.239 million; GP�catch-up tier: $4.448�million.
Devon Coombs CPA, MBA | Santa Clara University | FIN143
35
W7-S035
143
Hard (7/8)
Answer: Preferred return and full catch-up
KNOWLEDGE CHECK
D. LP preferred return: $22.239 million; GP catch-up tier: $5.560 million.
Work the calculation
The first contribution earns three years of preferred return; the�second earns two.
Preferred return = $60 million × (1.08³ − 1) + $40 million × (1.08²�− 1) = $22.238720 million.
If C is the 100% GP catch-up, C / (preferred return + C) = 20%.�Thus C = preferred return × 20%/80% = $5.559680 million. There�is enough cash to complete this tier.
Tier | LP�distribution,�$m | GP�distribution,�$m | Cash�remaining,�$m |
Return capital | 100.000000 | 0 | 36.000000 |
Preferred�return | 22.238720 | 0 | 13.761280 |
GP catch-up | 0 | 5.559680 | 8.201600 |
Residual split | 6.561280 | 1.640320 | 0 |
Total | 128.800000 | 7.200000 | 0 |
The question asks for the catch-up tier, not�total GP carry. Total GP carry is $7.2 million�because this fully completed waterfall�ultimately gives the GP 20% of the $36�million total profit.
Why the other choices are wrong
A. Accrues three years of preferred return�on the second contribution even though it�is invested for only two years.
B. Accrues only two years of preferred�return on the first contribution, which is�invested for three years.
C. Uses simple interest instead of the�stated annual compounding.
E. Sets catch-up at 20% of the preferred�return alone, excluding the catch-up itself�from total distributed profit.
Devon Coombs CPA, MBA | Santa Clara University | FIN143
36
W7-S035
143
Hard (7/8)
When proceeds stop, the waterfall stops
Hypothetical: $100m LP capital at time zero; final distribution at year�one; 8% preferred return; 100% catch-up; 20% carry; no fees, taxes, or�GP capital.
Distributable�proceeds | LP total | GP carry | Tier reached |
$80m | $80m | $0m | Capital not fully recovered |
$106m | $106m | $0m | Preferred return only partly�paid |
$109m | $108m | $1m | Catch-up only partly paid |
$110m | $108m | $2m | Catch-up complete |
“GP gets 20% of profit” is the final result only after the full catch-up�target is reached in this model.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
37
Knowledge check: incomplete catch-up
Assumptions: No fees, taxes, GP capital, guarantees, or interim�distributions.
LPs contribute $80m at time zero. At year one, final proceeds are�$89.2m. Capital comes first, then a 10% preference, then 100% GP�catch-up toward 20% carry. How is the cash allocated?
A. LPs $87.36m; GP $1.84m.
B. LPs $89.2m; GP $0m.
C. LPs $87.2m; GP $2m.
D. LPs $88m; GP $1.2m.
E. LPs $88.96m; GP $0.24m.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
38
W7-S038
143
Hard (6/8)
Knowledge check: incomplete catch-up — Answer
Correct answer: D — LPs $88m; GP $1.2m.
Why: Capital plus preference uses $80m + $8m = $88m. Only $1.2m�remains for the GP. The full catch-up target is $2m, but available cash�is insufficient to complete it.
Other choices: A applies 20% to all profit too early. B prohibits partial�catch-up. C funds the catch-up target by underpaying the LP�preference. E uses the residual 80/20 split before catch-up�completes.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
39
W7-S038
143
Hard (6/8)
A catch-up can allocate less than 100% to the GP
Hypothetical: capital has been returned and LPs have received $8m of�preference. During catch-up, 80% goes to GP and 20% to LP, until GP�reaches 20% of all profit distributed.
Let x = total cash distributed during catch-up:
0.80x / ($8m + x) = 0.20 → x = $2.6667m.
GP receives $2.1333m; LPs receive $0.5333m during catch-up. Then�remaining profit splits 80% LP / 20% GP.
An 80% catch-up rate and 20% final carry are different contractual�inputs. Enough cash must remain to complete the tier.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
40
Question: Partial GP catch-up
KNOWLEDGE CHECK
LPs contribute $100 million at inception. At the end of Year 2, the fund has�$120 million available for its final distribution, after fees and expenses but�before GP carry. There are no interim distributions or GP capital contributions.
Apply the waterfall in this order:
Tier | Allocation and stopping rule |
1. Return capital | Pay LPs their $100 million contribution. |
2. Preferred return | Pay LPs the preferred return accrued at 8% annually,�compounded for two years on their original $100�million contribution. |
3. Catch-up | Allocate each dollar 80% to the GP and 20% to LPs�until GP carry equals 20% of cumulative distributed�profit. |
4. Residual | Split later profit 80% to LPs and 20% to the GP. |
For the catch-up test, distributed profit includes the preferred return and all�profit paid during catch-up, but excludes returned capital. Stop when cash is�exhausted; an unfinished tier does not create an additional payment obligation.
What are final GP carry and total LP distributions, rounded to $0.001 million?
A. GP carry: $4.000�million; total LP�distributions: $116.000�million.
B. GP carry: $3.360�million; total LP�distributions: $116.640�million.
C. GP carry: $2.688�million; total LP�distributions: $117.312�million.
D. GP carry: $0.672�million; total LP�distributions: $119.328�million.
E. GP carry: $3.200�million; total LP�distributions: $116.800�million.
Devon Coombs CPA, MBA | Santa Clara University | FIN143
41
W7-S041
143
Hard (7/8)
Answer: Partial GP catch-up
KNOWLEDGE CHECK
C. GP carry: $2.688 million; total LP�distributions: $117.312 million.
Work the calculation
Preferred return = $100 million × (1.08² −�1) = $16.640 million. After returning capital�and paying the preference, cash remaining�is $3.360 million.
Let X be the total cash passing through a�completed catch-up tier. The target is�0.8X / (16.64 + X) = 20%, giving X =�$5.546667 million. Only $3.36 million is�available, so the tier remains incomplete.
GP carry = 80% × $3.36 million = $2.688�million. LPs receive $100 million + $16.64�million + 20% × $3.36 million = $117.312�million. The distributions sum to $120�million. There is no residual-tier allocation.
Why the other choices are wrong
A. Applies 20% carry to all profit�even though the catch-up cannot�be completed.
B. Applies a 100% GP catch-up�instead of the stated 80% GP / 20%�LP catch-up.
D. Skips catch-up and immediately�uses the residual 20% GP allocation.
E. Uses two years of simple�preferred return, leaving too much�cash for catch-up.
Devon Coombs CPA, MBA | Santa Clara University | FIN143
42
W7-S041
143
Hard (7/8)
The hurdle’s effect depends on the catch-up terms
Same hypothetical: $100m LP capital, $130m final proceeds at year�one, 20% carry; no fees, taxes, or GP capital.
Terms | LP total | GP carry |
No preferred return | $124.0m | $6.0m |
8% preference + full 100% catch-up | $124.0m | $6.0m |
8% preference + no catch-up | $125.6m | $4.4m |
Without catch-up, carry applies only to the $22m left after capital and�preference.
With full catch-up and sufficient proceeds, the GP reaches 20% of�total profit. At lower proceeds, even full catch-up terms may not reach�that result.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
43
Knowledge check: same final split, different protection
Assumptions: No fees, taxes, GP capital, or other differences.
Two funds receive $100m at time zero and distribute only at year one. Both�return capital first and charge 20% carry. One has no preference; the other has�an 8% preference and 100% GP catch-up. Compare GP carry at final proceeds�of $120m and $105m.
A. $120m: same carry; $105m: lower carry with the preference.
B. $120m: lower carry with the preference; $105m: same carry.
C. $120m: same carry; $105m: same carry.
D. $120m: higher carry with the preference; $105m: lower carry with the�preference.
E. $120m: lower carry with the preference; $105m: higher carry with the�preference.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
44
W7-S044
143
Hard (6/8)
Knowledge check: same final split,�different protection — Answer
Correct answer: A — $120m: same carry; $105m: lower carry with�the preference.
Why: At $120m, both pay $4m carry: the preferred-return fund�completes catch-up. At $105m, the no-preference fund pays $1m�carry; the preferred-return fund pays $0 because its $8m preference�is not fully paid.
Other choices: B treats catch-up as absent and misses the�low-outcome protection. C ignores incomplete tiers. D treats�catch-up as extra carry. E reverses the protection at the low outcome.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
45
W7-S044
143
Hard (6/8)
Whole-fund and deal-by-deal waterfalls�change payment timing
Whole-fund (“European”) | Deal-by-deal (“American”) |
Carry distributions generally wait�until the fund-level capital-return�threshold and any preference are�met. | A profitable exit may support�carry before all fund capital is�returned. |
Later losses are more likely to be�absorbed before carry is paid. | Later losses can make previously�paid carry excessive. |
These labels describe structures, not mandatory geographic rules.�Carry percentages can be the same. Loss offsets, fees, reserves, and�preferred returns still depend on the LPA.
ILPA whole-fund model LPA (2020), especially §14.3 and §14.7; illustrative negotiated terms; AngelList, Distributions: fund distribution mechanics.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
46
A winner followed by a loss can create a clawback
Hypothetical deal-by-deal fund: LPs invest $50m in A and $50m in B.�Carry is 20%; no fees, preferred return, taxes, or GP capital.
Under a whole-fund capital-first model, A’s $100m would have gone to�LPs before any carry.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
47
Knowledge check: calculate the carry true-up
Assumptions: No fees, preferred return, taxes, or GP capital; full�fund-level clawback with no cap or collectability issue.
LPs invest $50 million in each of two deals. A exits for $100 million and�the GP receives $10 million carry. B later exits for $20 million. Final�carry is 20% of total fund profit. How much carry must the GP return?
A. $0 million.
B. $4 million.
C. $6 million.
D. $10 million.
E. $8 million.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
48
W7-S048
143
Medium (4/8)
Knowledge check: calculate the carry true-up — Answer
Correct answer: C — $6 million.
Why: Final proceeds are $120 million on $100 million capital: $20�million profit. Final carry is $4 million. The GP has already received $10�million, so the required repayment is $6 million.
Other choices: A ignores the clawback. B confuses entitlement with�repayment. D ignores the fund’s remaining profit. E applies the 80% LP�share to earlier carry instead of reconciling actual overpayment.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
49
W7-S048
143
Medium (4/8)
A clawback is a repayment obligation;�escrow holds cash back
Check who owes repayment, when it is tested, any tax adjustment or�cap, and whether repayment is collectible.
Whole-fund waterfalls reduce the risk of premature carry but do not�make every clawback provision irrelevant.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
50
Question: Escrow and GP clawback
KNOWLEDGE CHECK
LPs fund two investments: $30 million in Company A and $30 million in Company B. There�are no fees, expenses, preferred returns, or GP capital contributions.
Company A exits first for $78 million. Its deal-by-deal waterfall returns that investment's�$30 million cost to LPs, then allocates profit 80% to LPs and 20% to GP carry. Twenty�percent of the allocated GP carry is retained in escrow; the rest is paid to the GP.
Company B later exits for $18 million. The fund then liquidates. An enforceable final�clawback limits total GP carry to 20% of the combined profit after returning all $60 million�of LP capital. Any escrowed carry is used first to satisfy a clawback. There are no tax�limitations or other adjustments.
What is the total clawback obligation, including the portion covered by escrow, and�how much additional cash must the GP repay after applying that escrow?
A. Total clawback: $2.40 million; additional GP cash repayment: $2.40 million.
B. Total clawback: $2.40 million; additional GP cash repayment: $0.48 million.
C. Total clawback: $1.92 million; additional GP cash repayment: $0.00 million.
D. Total clawback: $9.60 million; additional GP cash repayment: $7.68 million.
E. Total clawback: $8.40 million; additional GP cash repayment: $6.48 million.
Devon Coombs CPA, MBA | Santa Clara University | FIN143
51
W7-S051
143
Hard (7/8)
Answer: Escrow and GP clawback
KNOWLEDGE CHECK
B. Total clawback: $2.40 million;�additional GP cash repayment: $0.48�million.
Work the calculation
Company A profit = $78 million − $30 million = $48�million. Allocated carry = $9.60 million; escrow =�$1.92 million; cash initially paid to the GP = $7.68�million.
Combined profit = $78 million + $18 million − $60�million = $36 million. Final permissible carry = $7.20�million.
Total excess carry = $9.6 million − $7.2 million = $2.4�million. Apply the $1.92 million escrow, leaving $0.48�million of additional GP cash repayment.
After the true-up, LPs receive $88.8 million and the�GP retains $7.2 million, totaling the $96 million of�proceeds. Escrow reduces collection risk; it does not�change the amount of carry earned under the final�waterfall.
Why the other choices are wrong
A. Calculates the carry overpayment�correctly but ignores the escrow�already available to satisfy it.
C. Mistakes the escrow balance for�the total clawback obligation.
D. Claws back all early carry even�though the fund still earns a positive�aggregate profit.
E. Treats Company B’s $18 million�proceeds as the only fund proceeds�when measuring the capital shortfall;�it ignores Company A’s realized gain.
Devon Coombs CPA, MBA | Santa Clara University | FIN143
52
W7-S051
143
Hard (7/8)
Commit, call, invest, support, and harvest
An investment period ending does not necessarily prohibit follow-ons.�Fund age alone does not establish available cash or authority to invest.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
53
The J-curve describes cash timing,�not a guaranteed recovery
Cumulative net cash to LPs = cumulative distributions − cumulative�contributions.
Early calls for investments, fees, and expenses can make cumulative�cash negative. Later distributions may bring it back toward or above�zero.
Portfolio markups can increase reported value without producing cash�for LPs.
The trough and recovery vary by fund and exit environment. A weak�fund may never recover its contributed capital.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
54
Knowledge check: portfolio value versus cash available
A fund reports higher portfolio valuations, but LPs have received no�distributions and still face capital calls. Which conclusion is best supported?
A. The new calls indicate that the fund’s investments performed poorly�despite the reported valuation gains.
B. The valuation gains reduce future funding needs by the same amount,�so LPs can lower cash reserves.
C. The calls establish that the fund has exhausted its reserves for�supporting existing portfolio companies.
D. After the investment period ends, further capital calls must be for fees�rather than follow-on investments.
E. Reported value can rise while LP cash flow is negative and calls�continue.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
55
W7-S055
143
Easy (1/8)
Knowledge check: portfolio value�versus cash available — Answer
Correct answer: E — Reported value can rise while LP cash flow is�negative and calls continue.
Why: A valuation mark is not a cash distribution. LPs must manage the�liquidity needed for calls even when estimated portfolio value rises.
Other choices: A infers performance from cash demands. B treats an�unrealized gain as funding capacity. C confuses a call with exhaustion�of follow-on reserves. D assumes the investment period prohibits later�follow-ons.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
56
W7-S055
143
Easy (1/8)
Knowledge check: reserves versus new investments
Assumptions: No recycling,�new commitments, or other�changes to available�capacity.
A fund has $20m of�remaining investable�capacity after fees and�expenses. Its plan reserves�$12m for follow-ons. It�considers a new $10m�investment. Under the�unchanged reserve plan,�which conclusion is correct?
A. $20m is available for new checks;�reserves matter only when a follow-on�closes.
B. $10m fits if funded through a capital call�instead of the fund’s existing cash.
C. $8m is available now; a portfolio valuation�markup can fund the remaining $2m.
D. $8m is available for new checks; funding�$10m requires revisiting the reserve plan.
E. $12m is available for new checks because�that amount was set aside for future�investing.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
57
W7-S057
143
Medium (3/8)
Knowledge check: reserves�versus new investments — Answer
Correct answer: D — $8m is available for new checks; funding $10m�requires revisiting the reserve plan.
Why: The planned new-investment budget is $20m − $12m = $8m. A�$10m check requires an authorized change to the reserve plan or�another source of capacity. A capital call converts commitments into�cash; it does not expand this budget.
Other choices: A spends capacity already reserved. B confuses cash�timing with budget capacity. C treats a valuation gain as cash. E�assigns follow-on reserves to new investments.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
58
W7-S057
143
Medium (3/8)
DPI and RVPI answer different questions
Use the same date and LP-level basis, net of fund fees, expenses, and�carried-interest allocations.
Metric | Formula | Question answered |
DPI | Cumulative distributions�/ paid-in capital | How much was distributed per dollar�contributed? |
RVPI | Residual net asset value /�paid-in capital | How much estimated value remains�per dollar contributed? |
TVPI | (Distributions + residual value) / paid-in capital | What is total value per dollar�contributed? |
Paid-in capital is contributed capital, not committed capital. Distributions can include assets in kind; classroom examples here use cash. Gross portfolio multiples are not interchangeable with net LP multiples.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
59
W7-S057
143
Medium (3/8)
Knowledge check: total value multiple
Assumptions: Both quoted multiples use the same paid-in capital and�LP net basis; the portfolio value is residual value attributable to LPs.
A fund has returned 1.2x of paid-in capital in cash and holds portfolio�value worth another 1.1x. What is its TVPI?
A. 1.2x, counting only the cash returned
B. 1.1x, counting only the residual value
C. 0.1x, the difference between the two
D. 2.3x, realized plus unrealized value
E. 1.32x, the product of the two multiples
Devon Coombs CPA, MBA · Santa Clara University · FIN143
60
W7-S060
143
Easy (2/8)
Knowledge check: total value multiple — Answer
Correct answer: D — 2.3x, realized plus unrealized value
Why: With a common paid-in denominator and valuation date, TVPI =�DPI + RVPI = 1.2x + 1.1x = 2.3x. Only 1.2x has been returned in cash; 1.1x�remains an estimate.
Other choices: A omits residual value. B omits distributions. C�subtracts the components. E multiplies ratios that must be added.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
61
W7-S060
143
Easy (2/8)
Cash realizations and NAV marks
Illustration, all figures net to LPs: paid-in capital is $40m, cumulative distributions are�$20m, and residual NAV is $50m. An asset carried at $15m sells for $12m, which is fully�distributed. Remaining assets are then marked down 20%. No other changes occur.
Updated amount | Calculation |
Cumulative distributions | $20m + $12m = $32m |
Remaining NAV | ($50m − $15m) × 80% = $28m |
DPI | $32m / $40m = 0.80× |
RVPI | $28m / $40m = 0.70× |
TVPI | ($32m + $28m) / $40m = 1.50× |
Remove the sold asset at its former carrying value. Add the actual distributed sale�proceeds to distributions. Apply the markdown only to assets still held.
DPI rose from 0.50× to 0.80×, while TVPI fell from 1.75× to 1.50×. More realized cash�can accompany lower total value.
Devon Coombs CPA, MBA | Santa Clara University | FIN143
62
Question: DPI and TVPI
KNOWLEDGE CHECK
A fund has $80 million of commitments, $50 million of LP�paid-in capital, $25 million of cumulative LP distributions,�and $60 million of residual NAV attributable to LPs.
An asset included in the $60 million NAV is valued at $20�million. The fund sells it for $16 million and distributes all�$16 million to LPs. After removing that asset, the manager�reduces the value of the entire remaining portfolio by 25%.
All asset values, sale proceeds, and distributions are LP�amounts after fees, expenses, and carry; no further carry�adjustment is required. There are no new contributions,�other distributions, liabilities, or valuation changes.
What are DPI and TVPI immediately after both events?
A. DPI: 0.51×;�TVPI: 0.89×.
B. DPI: 0.82×;�TVPI: 1.72×.
C. DPI: 0.90×;�TVPI: 1.50×.
D. DPI: 0.82×;�TVPI: 1.62×.
E. DPI: 0.82×;�TVPI: 1.42×.
Devon Coombs CPA, MBA | Santa Clara University | FIN143
63
W7-S063
143
Hard (6/8)
Answer: DPI and TVPI
KNOWLEDGE CHECK
E. DPI: 0.82×; TVPI: 1.42×.
Work the calculation
Updated cumulative LP distributions = $25�million + $16 million = $41 million.
Remaining NAV before markdown = $60 million�− $20 million = $40 million. After the markdown,�NAV = $40 million × 75% = $30 million.
DPI = $41 million / $50 million = 0.82×. RVPI =�$30 million / $50 million = 0.60×. TVPI = ($41�million + $30 million) / $50 million = 1.42×.
Before the events, DPI was 0.50× and TVPI was�1.70×. Cash realization can increase DPI while a�loss on sale and markdowns reduce total value.�A higher DPI alone does not mean total fund�performance improved.
Why the other choices are wrong
A. Uses commitments, rather than�paid-in capital, as the�denominator.
B. Marks down the old $60 million�NAV without first removing the�sold asset.
C. Treats the asset’s former $20�million mark as the cash proceeds�received and distributed.
D. Removes the realized asset but�ignores the subsequent markdown�of the remaining portfolio.
Devon Coombs CPA, MBA | Santa Clara University | FIN143
64
W7-S063
143
Hard (6/8)
A 2.0x portfolio can produce a lower LP cash multiple
Hypothetical: LPs contribute $100m; $90m is invested and $10m pays�lifetime fees and expenses. All investments exit for $180m. No preference,�taxes, or GP capital. The LPA returns all $100m contributed before 20%�carry.
Calculation | Result |
Gross portfolio multiple: $180m / $90m | 2.0x |
Profit eligible for carry: $180m − $100m | $80m |
GP carry: 20% × $80m | $16m |
LP distribution: $180m − $16m | $164m |
LP net DPI: $164m / $100m | 1.64x |
The $10m cost was already paid from contributions. Do not deduct it again�from exit proceeds. All value is distributed, so final TVPI equals DPI.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
65
Question: Fees, carry, and LP returns
KNOWLEDGE CHECK
LPs commit and contribute a total of $80 million to a fund. The following costs�are paid from that contributed capital:
Cost | Rate or�amount | Applicable base or period |
Management fee, Years 1–3 | 2% annually | $80 million of commitments |
Management fee, Years 4–5 | 1.5% annually | Fixed $40 million fee base |
Other lifetime fund expenses | $2 million | Total across the fund's life |
All capital remaining after these costs is invested. Total cash received from�selling all portfolio investments, including recovery of invested capital, equals�2.00× the amount actually invested. No unsold investments or other fund�assets remain. The costs above have already been paid and are not deducted�again from exit proceeds.
The whole-fund waterfall first returns all $80 million of LP contributions, then�allocates remaining profit 80% to LPs and 20% to GP carry. There is no�preferred return, catch-up, or GP capital contribution.
What is final net LP DPI, rounded to two decimal places?
A. 1.64×
B. 1.62×
C. 1.56×
D. 1.60×
E. 1.82×
Devon Coombs CPA, MBA | Santa Clara University | FIN143
66
W7-S066
143
Hard (7/8)
Answer: Fees, carry, and LP returns
KNOWLEDGE CHECK
A. 1.64×
Work the calculation
Management fees = 3 × 2% × $80 million + 2 × 1.5% × $40�million = $6 million. Including $2 million of other expenses,�total costs are $8 million.
Invested capital = $80 million − $8 million = $72 million.�Gross exit proceeds = 2.00 × $72 million = $144 million.
Distribution step | LPs | GP carry |
Return all�contributed capital | $80 million | $0 |
Split the $64 million�remaining profit | $51.2 million | $12.8 million |
Total | $131.2 million | $12.8 million |
Net LP DPI = $131.2 million/$80 million = 1.64×. Fees�reduce deployable capital; the carry base and DPI�denominator nevertheless use total contributed capital�under the stated contract. All distributions reconcile to�$144 million.
Why the other choices are wrong
B. Returns only the $72 million invested�before charging carry, rather than all $80�million of LP contributions. Carry�becomes $14.4 million and LP�distributions $129.6 million.
C. Deducts the $8 million of fees and�expenses again from $144 million of exit�proceeds, then computes carry on the�reduced profit.
D. Keeps charging 2% of the $80 million�commitment in all five years. That�incorrect schedule leaves $70 million�invested, $140 million of proceeds, and�$128 million for LPs.
E. Divides the correct $131.2 million of LP�distributions by $72 million invested�instead of $80 million paid in.
Devon Coombs CPA, MBA | Santa Clara University | FIN143
67
W7-S066
143
Hard (7/8)
Multiples measure value; IRR also reflects timing
Hypothetical: one $100 million contribution and one $200 million net�cash distribution; no other cash flows.
Time to receive�$200 million | TVPI after�liquidation | Annualized IRR |
3 years | 2.0x | 2^(1/3) − 1 ≈ 26.0% |
6 years | 2.0x | 2^(1/6) − 1 ≈ 12.2% |
The profit dollars are identical; the waiting time differs. Read IRR�alongside DPI, TVPI, fund age, and valuation assumptions. Neither IRR�nor TVPI alone proves cash realization.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
68
Knowledge check: what higher IRR means
Assumptions: The stated payments are net to LPs; no other cash flows.
Two fully liquidated funds each receive $100m initially and return $150m in one�final payment. A pays after two years; B pays after four. Which statement is�correct?
A. A has a higher IRR and a higher TVPI because its capital is returned�sooner.
B. The funds have equal IRRs and equal TVPIs because their final cash�proceeds match.
C. A has a higher IRR; both have the same TVPI and profit dollars.
D. B has a higher IRR because investors keep their capital invested for�longer.
E. A’s annual IRR is twice B’s because it takes half as long to pay.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
69
W7-S069
143
Easy (1/8)
Knowledge check: what higher IRR means — Answer
Correct answer: C — A has a higher IRR; both have the same TVPI�and profit dollars.
Why: Both create $50m profit and return 1.5x.�Annual IRR is 1.5^(1/2) − 1 ≈ 22.5% for A�and 1.5^(1/4) − 1 ≈ 10.7% for B.�Compounding means the rates are not in a simple two-to-one ratio.
Other choices: A inserts timing into TVPI. B ignores timing in IRR. D�reverses the timing effect. E treats compounded annual returns as�linear in years.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
70
W7-S069
143
Easy (1/8)
Calculate LP IRR from dated net cash flows
Use the LP's actual contributions as negative cash flows and net distributions as�positive cash flows. A final residual NAV is an estimated terminal value, not a cash�distribution.
Illustration, $m: −50 today, −50 at Year 1, and +121 at Year 3; no other flows or�residual NAV.
IRR solves: −50 − 50 / (1 + r) + 121 / (1 + r)³ = 0. A financial calculator's cash-flow�worksheet gives approximately 7.89% annually.
Cash-flow entries: CF₀ = −50; C₁ = −50; C₂ = 0; C₃ = 121, each frequency 1. Keep�the zero year.
DPI = 121 / 100 = 1.21×. A multiple does not reflect when contributions were made.
Devon Coombs CPA, MBA | Santa Clara University | FIN143
71
Question: Timing changes the LP return
An LP contributes $40m today and $60m exactly one year later. It receives its only�net distribution, $146.2m, at the end of Year 3. The fund is then liquidated with no�residual value. Fees and carry are already reflected in these LP cash flows.
What is the approximate annual LP IRR?
A. 13.50% per year.
B. 20.91% per year.
C. 46.20% per year.
D. 17.00% per year.
E. 15.40% per year.
Devon Coombs CPA, MBA | Santa Clara University | FIN143
72
W7-S072
143
Medium (5/8)
Answer: Timing changes the LP return
D. 17.00% per year.
Enter CF₀ = −40, CF₁ = −60, CF₂ = 0, and CF₃ = +146.2, with annual periods and�frequency 1. Compute IRR ≈ 17.00%.
Check: −40 − 60 / 1.17 + 146.2 / 1.17³ ≈ 0.
A treats all $100m as contributed today; B assigns the whole contribution to Year�1; C reports total profit as an annual return; E divides the total return by three. Do�not deduct fees or carry a second time.
Devon Coombs CPA, MBA | Santa Clara University | FIN143
73
W7-S072
143
Medium (5/8)
Knowledge check: compare multiples and cash dollars
Assumptions: All�distributions are cash; both�reports use consistent�methods and dates.
Same-vintage Fund A has�$20m paid-in capital, DPI�1.5x, and RVPI 0.3x. Fund B�has $100m paid-in capital,�DPI 0.3x, and RVPI 1.5x.�Both have TVPI 1.8x. Which�conclusion is supported?
A. A has returned five times as many cash�dollars because its DPI is five times higher.
B. A returned more cash per dollar�contributed; both returned $30m in total.
C. The funds have equal annualized IRRs�because their total value multiples are the�same.
D. B has the stronger realized record�because its larger residual value outweighs�its lower DPI.
E. A’s smaller residual value means it has�recovered a lower fraction of its�contributed capital.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
74
W7-S074
143
Medium (4/8)
Knowledge check: compare multiples�and cash dollars — Answer
Correct answer: B — A returned more cash per dollar contributed;�both returned $30m in total.
Why: A distributed 1.5 × $20m = $30m; B distributed 0.3 × $100m =�$30m. A’s higher DPI measures cash returned per contributed dollar.�B’s TVPI depends more heavily on unrealized value.
Other choices: A compares ratios as absolute dollars. C ignores�cash-flow timing. D treats unrealized value as realized performance. E�uses RVPI rather than DPI to judge cash recovery.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
75
W7-S074
143
Medium (4/8)
Subscription credit lines change the LP cash clock
A subscription credit line lets a fund borrow before calling committed capital from�LPs. It bridges funding timing and adds interest, fees, and repayment obligations.
Delaying the LP’s cash contribution can raise reported LP IRR even when the�investment’s purchase date and exit proceeds are unchanged. Costs can reduce�the LP’s cash multiple.
For diligence, compare returns with and without the facility, cash-flow dates,�borrowing costs, and the remaining repayment obligation. A higher IRR alone does�not establish better investment selection.
For founders, a fund’s available borrowing is not an unconditional promise of future�company financing.
Devon Coombs CPA, MBA | Santa Clara University | FIN143
76
Question: A higher IRR from a delayed capital call
A fund buys an investment for $10m at time 0 and sells it for $12.1m at the end of�Year 2. With direct funding, LPs pay $10m at time 0. With a credit line, LPs instead�pay $10.5m at the end of Year 1 to repay principal and all borrowing costs. In both�cases LPs receive $12.1m at Year 2. There are no other flows or residual assets.�Which annual LP IRRs and cash multiples are correct?
A. Direct funding: 10.00% and 1.21×; credit line: 7.35% and 1.15×.
B. Direct funding: 21.00% and 1.21×; credit line: 15.24% and 1.15×.
C. Direct funding: 10.00% and 1.21×; credit line: 21.00% and 1.21×.
D. Direct funding: 10.00% and 1.21×; credit line: 10.00% and 1.21×.
E. Direct funding: 10.00% and 1.21×; credit line: 15.24% and 1.15×.
Devon Coombs CPA, MBA | Santa Clara University | FIN143
77
W7-S077
143
Hard (6/8)
Answer: A higher IRR from a delayed capital call
E. Direct: 10.00% IRR, 1.21× multiple; line: 15.24% IRR, 1.15× multiple.
Direct funding: IRR = (12.1 / 10)^(1/2) − 1 = 10.00%. Cash multiple = 12.1 / 10 =�1.21×.
Credit line: LP money is out for one year. IRR = 12.1 / 10.5 − 1 = 15.24%. Cash�multiple = 12.1 / 10.5 = 1.15×.
The investment’s proceeds did not improve. Later LP funding raises IRR here, while�$0.5m of costs reduces the multiple.
A gives the line-funded LP a two-year holding period. B treats the direct�investment’s two-year gain as an annual return. C omits borrowing costs. D ignores�both changes in the LP cash flows.
Devon Coombs CPA, MBA | Santa Clara University | FIN143
78
W7-S077
143
Hard (6/8)
A small number of investments can dominate VC outcomes
In aggregate Horsley Bridge data covering more than 7,000�investments from 1985–2014, roughly 6% of deals generated about�60% of total returns.
This illustrates highly skewed outcomes in that historical sample. It�does not establish a fixed percentage for every fund or prove an exact�statistical power-law distribution.
For a founder, the implication is practical: an investor considers�whether the company’s potential exit, multiplied by the fund’s eventual�ownership, could materially affect the fund.
Benedict Evans (2016), In praise of failure; aggregate Horsley Bridge data; Chris Dixon (2015), Performance data and the Babe Ruth effect in venture capital.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
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Breadth, ownership, and fund size all matter
Broader portfolio | More concentrated portfolio |
More opportunities to find a�large winner | More exposure to each selected company |
Smaller initial checks at a given�fund size | Larger checks may support greater ownership |
More companies compete for�follow-on capital and attention | Fewer positions increase company-specific risk |
Hypothetical: a fund retains 10% at a $300 million equity exit and receives�$30 million. Those proceeds equal 100% of a $30 million fund’s size, but 10%�of a $300 million fund’s size, before fees and carry. These percentages�describe relative impact, not final net fund performance.
Entry price, dilution, preferences, reserves, and exit ownership affect the�actual proceeds.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
80
Knowledge check: why fund size matters to a founder
Assumptions: Same exit�rights; no debt, preferences,�selling costs, or further�dilution.
Two funds each retain 8% at a�possible $400m equity exit.�Their committed fund sizes�are $40m and $200m. Which�conclusion about this�potential outcome is�supported?
A. The larger fund receives five times more�proceeds because it manages five times as�much committed capital.
B. The two positions have equal fund-level�impact because the funds retain the same�percentage of the company.
C. The two investments earn equal deal-level�multiples because their eventual exit�ownership percentages are the same.
D. The same $32m represents 80% of the�smaller fund and 16% of the larger fund.
E. The larger fund’s stake cost five times more�because its committed fund size is five times�greater.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
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W7-S081
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Medium (4/8)
Knowledge check: why fund size�matters to a founder — Answer
Correct answer: D — The same $32m represents 80% of the smaller�fund and 16% of the larger fund.
Why: Eight percent of $400m is $32m for either fund. Relative to�commitments, that is $32m / $40m = 80% and $32m / $200m = 16%.�These are gross proceeds relative to fund size, not net LP returns.
Other choices: A changes proceeds without changing ownership. B�ignores relative fund size. C needs entry cost to determine an�investment multiple. E infers purchase cost from fund size.
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Medium (4/8)
A track record is evidence, not a promise
Top quartile: the best-performing 25% of funds with comparable strategies�and start years, using the same metric and measurement date.
Persistence: whether managers’ relative performance tends to continue�across successive funds.
Harris, Jenkinson, Kaplan, and Stucke (2023) find VC persistence in�historical institutional cash-flow data. Using information available at�fundraising, it remains but weakens after 2000; buyout evidence is weaker.
For diligence, examine realized results, interim valuations, team continuity,�strategy, and fund size. A published historical relationship does not give a�manager a guaranteed probability of repeating a top-quartile result.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
83
Knowledge check: evaluate a manager’s track record
A manager advertises a top-quartile prior fund with TVPI 2.5x and DPI 0.4x. Its�successor is three times larger and has a changed investment team. What should�an LP emphasize?
A. Check unrealized valuations, realized proceeds, and how the changed team�would deploy the larger fund.
B. Use the 2.5x TVPI as evidence that investors have already received strong�cash returns.
C. Set the successor’s expected multiple equal to the previous fund’s current�0.4x DPI.
D. Evaluate today’s commitment using the prior fund’s eventual final quartile�once it becomes available.
E. Use the manager’s past frequency of top-quartile funds as the chance of�repeating that result, without adjusting for changes.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
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W7-S084
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Hard (6/8)
Knowledge check: evaluate a�manager’s track record — Answer
Correct answer: A — Check unrealized valuations, realized�proceeds, and how the changed team would deploy the larger fund.
Why: Most of the reported value is unrealized: RVPI is 2.5x − 0.4x =�2.1x. Investigate those marks and whether the changed team can�deploy the larger fund effectively. Persistence is relevant evidence,�not a substitute for that analysis.
Other choices: B treats TVPI as cash returned. C turns a current cash�multiple into a forecast. D uses hindsight. E carries a historical�relationship into a changed situation without examination.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
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W7-S084
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Hard (6/8)
Different access routes create different exposures
Compare the actual security, obligations, and cash flows—not just the�label “venture exposure.”
Devon Coombs CPA, MBA · Santa Clara University · FIN143
86
Knowledge check: public manager shares�versus a fund interest
An investor buys shares in a listed private-markets manager instead of becoming�an LP in a VC fund. Which exposure has the investor primarily acquired?
A. A proportional share of the VC fund’s net portfolio value, with liquidity�supplied by stock-market trading.
B. The manager’s gross fee receipts, without the operating costs paid by its�management business.
C. Equity in the manager’s business, including its fee and carry economics.
D. The VC fund’s investment profits before fees and carry, because those�payments stay within the listed group.
E. A claim on the management business whose returns should match the VC�fund’s net investment returns.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
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W7-S087
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Easy (0/8)
Knowledge check: public manager shares�versus a fund interest — Answer
Correct answer: C — Equity in the manager’s business, including its�fee and carry economics.
Why: A listed share is a claim on the public company. Shareholder�earnings reflect the manager’s income and costs across its activities,�rather than all of a fund’s investment proceeds. Its economics differ�from an LP interest in a particular VC fund.
Other choices: A substitutes a fund’s NAV claim for manager equity. B�ignores operating costs. D assigns LP investment profits to manager�shareholders. E assumes manager-stock returns match a particular�fund’s returns.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
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W7-S087
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Easy (0/8)
Five questions to ask about a venture investor
Fund economics help explain an investor’s incentives. The specific fund�documents and the investor’s actual behavior determine how those�incentives operate.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
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The GP can receive investment returns as well as carry
Hypothetical: LPs invest $99m and the GP invests $1m. Final proceeds�are $200m; no fees, taxes, or preference. Capital interests share�proportionally; GP earns 20% carry only on LP-attributable profit.
Total distributions equal $200m. The GP’s entire receipt is not carried�interest.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
90
Knowledge check: identify the GP’s cash flows
Assumptions: No fees, taxes, preferred return, or other cash flows.
LPs contribute $98m and the GP contributes $2m. Final proceeds are�$150m. Capital interests share proportionally; the GP earns 20% carry�only on LP-attributable profit. What does the GP receive from its own�investment and from carry?
A. Own investment: $2m; carry: $10m.
B. Own investment: $3m; carry: $10m.
C. Own investment: $2m; carry: $9.8m.
D. Own investment: $3m; carry: $9.8m.
E. Own investment: $3m; carry: $29.4m.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
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Medium (4/8)
Knowledge check: identify the GP’s cash flows — Answer
Correct answer: D — Own investment: $3m; carry: $9.8m.
Why: The GP’s 2% capital interest receives $3m. LPs’ gross allocation�is $147m; their profit is $147m − $98m = $49m, generating $9.8m�carry. The GP receives $12.8m total, but only $9.8m is carry.
Other choices: A omits the GP’s investment profit and charges carry�on its own profit. B charges carry on total fund profit. C omits the GP’s�investment profit. E charges carry on LP gross proceeds.
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Medium (4/8)
Carry does not automatically receive�long-term tax treatment
Under U.S. Internal Revenue Code §1061, certain gains allocated�through an applicable partnership interest can be recharacterized�from long-term to short-term capital gain.
The rule generally requires the relevant capital asset to be held more�than three years, subject to exceptions and detailed rules.
Fund age alone does not establish the holding period of each�investment. A four-year-old fund may sell a portfolio investment it�held for only two years.
The contractual cash waterfall and the tax characterization of gains�are separate questions.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
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Knowledge check: fund age and carried-interest tax
A six-year-old fund sells portfolio shares held for 30 months and allocates gains�through an applicable partnership interest. Which approach addresses the general�§1061 holding-period issue?
A. Use the fund’s six-year history as the holding period for this gain allocation.
B. Use the GP’s holding period in its partnership interest for this portfolio-asset�sale.
C. Apply the ordinary one-year capital-gain threshold without considering the�carried-interest rule.
D. Use the portfolio company’s age, because the shares represent ownership of�that business.
E. Test the asset’s 30-month holding period under §1061 and its exceptions.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
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Medium (4/8)
Knowledge check: fund age and�carried-interest tax — Answer
Correct answer: E — Test the asset’s 30-month holding period under�§1061 and its exceptions.
Why: The general rule requires more than three years for the relevant�capital asset. Thirty months does not meet that threshold; applicable�exceptions and detailed rules still need evaluation. The fund’s age does�not supply the missing holding period.
Other choices: A uses fund age. B substitutes the GP interest’s�holding period in an asset-sale scenario. C ignores §1061. D�substitutes the company’s age for the fund’s ownership period.
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W7-S094
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Medium (4/8)
Optional practice and reference
The main sequence teaches the concepts and includes foundation questions�followed by applied challenges.
The following slides retain additional questions, worked answers, and deeper�reference for independent practice or extra class time.
Each question stays with its answer. Use the topic titles to select practice; the�appendix does not introduce a prerequisite needed for the main lesson.
Devon Coombs CPA, MBA | Santa Clara University | FIN143
96
Knowledge check: timing the preferred return
Assumptions: No interim capital repayments or distributions.
LPs contribute $50m at time zero and $30m at year one. Distribution�occurs at year three. Preference compounds annually at 10% on�contributed, unreturned capital. Which calculation gives the accrued�preference?
A. $80m × (1.10³ − 1).
B. $80m × (1.10² − 1).
C. $50m × (1.10² − 1) + $30m × (1.10³ − 1).
D. $50m × 10% × 3 + $30m × 10% × 2.
E. $50m × (1.10³ − 1) + $30m × (1.10² − 1).
Devon Coombs CPA, MBA · Santa Clara University · FIN143
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W7-S097
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Medium (4/8)
Knowledge check: timing the preferred return — Answer
Correct answer: E — $50m × (1.10³ − 1) + $30m × (1.10² − 1).
Why: The $50m is outstanding for three years and the $30m for two.�Accrued preference is $16.55m + $6.30m = $22.85m. Each�contribution uses its own elapsed time.
Other choices: A gives both contributions three years. B gives both�two years. C reverses the holding periods. D uses simple interest�despite the compounding term.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
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W7-S097
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Medium (4/8)
Knowledge check: catch-up rate versus final carry
Assumptions: Capital and preference are paid; the catch-up target is�not reached during this payment.
A waterfall allocates 80% to the GP during catch-up toward a 20%�final profit share. An additional $1m will be paid entirely within that�catch-up tier. How is this $1m allocated?
A. GP $0.20m; LPs $0.80m.
B. GP $0.80m; LPs $0.20m.
C. GP $1.00m; LPs $0.00m.
D. GP $0.00m; LPs $1.00m.
E. GP $0.16m; LPs $0.84m.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
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W7-S099
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Easy (2/8)
Knowledge check: catch-up rate�versus final carry — Answer
Correct answer: B — GP $0.80m; LPs $0.20m.
Why: The catch-up tier directs 80% × $1m = $0.8m to the GP and the�rest to LPs. Its temporary allocation rate differs from the eventual 20%�carry target.
Other choices: A uses the residual split too early. C substitutes a�100% catch-up. D treats the payment as LP preference. E applies the�20% carry rate again to the 80% allocation.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
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W7-S099
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Easy (2/8)
Knowledge check: escrow and the remaining clawback
Assumptions: The LPA requires full clawback and escrow first. No tax�adjustment, cap, escrow earnings, or collectability issue.
Earlier carry was $10m: $8m released to the GP and $2m held in�escrow. Final carry entitlement is $4m. How should the excess be�recovered?
A. $2m from escrow; $0m from the GP.
B. $0m from escrow; $6m from the GP.
C. $2m from escrow; $6m from the GP.
D. $2m from escrow; $2m from the GP.
E. $2m from escrow; $4m from the GP.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
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Medium (4/8)
Knowledge check: escrow and�the remaining clawback — Answer
Correct answer: E — $2m from escrow; $4m from the GP.
Why: Excess carry is $10m − $4m = $6m. Apply the $2m escrow first,�then collect the remaining $4m from the GP. The GP retains $4m of�the $8m previously released.
Other choices: A treats escrow as a liability cap. B ignores the�escrow-first rule. C counts escrow in addition to the full $6m�repayment. D confuses final entitlement with excess carry.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
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Medium (4/8)
Knowledge check: fees, carry, and LP returns
Assumptions: All cash is distributed. No preference, unpaid costs, taxes,�GP capital, or interim distributions.
LPs contribute $80m: $70m is invested and $10m pays all fees and�expenses. Final exit proceeds are $140m. The LPA returns all $80m�contributed before 20% carry. Which GP carry, LP distribution, and net�DPI are correct?
A. Carry $14m; LPs $126m; DPI 1.575x.
B. Carry $12m; LPs $128m; DPI 1.60x.
C. Carry $28m; LPs $112m; DPI 1.40x.
D. Carry $12m; LPs $118m; DPI 1.475x.
E. Carry $12m; LPs $128m; DPI about 1.83x.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
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Hard (6/8)
Knowledge check: fees, carry, and LP returns — Answer
Correct answer: B — Carry $12m; LPs $128m; DPI 1.60x.
Why: Carry is 20% × ($140m − $80m) = $12m. LPs receive $128m, so�DPI is $128m / $80m = 1.60x. The gross portfolio multiple is $140m /�$70m = 2.0x.
Other choices: A uses investment cost instead of the stipulated�contribution base for carry. C charges carry on proceeds. D deducts�already-paid costs twice. E divides by investment cost rather than LP�paid-in capital.
Devon Coombs CPA, MBA · Santa Clara University · FIN143
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Hard (6/8)
Original questions for additional practice
Supplemental recall practice. These original questions review industry�structure, fund roles, waterfalls, performance, and research findings.
Use the stated assumptions and terminology for each question.�Answer reveals explain both the intended answer and any important�qualifications.
Research findings describe the named historical samples; they are not�forecasts or universal rules.
Devon Coombs CPA, MBA · Santa Clara University · FIN143 · Appendix
105
Original knowledge check: relative industry size
Assumptions: For this original question, “private equity” refers to the�broader private-equity universe, which includes VC. Public-market�capitalization and fund AUM are different measures.
How does the U.S. venture capital industry compare in size to public equity�and private equity?
A. VC is the single largest of the three by total assets under management
B. VC and private equity are roughly the same size overall
C. VC is far smaller than both private and public equity
D. VC is larger than private equity but smaller than public
E. The three are each capped at $1 trillion by regulation
NVCA 2026 Yearbook, U.S. VC AUM chart, printed p. 12; PitchBook, 2025 Annual US PE Breakdown, AUM, p. 33; SIFMA, 2026 Capital Markets Fact Book findings,�U.S. equity-market size.
Devon Coombs CPA, MBA · Santa Clara University · FIN143 · Appendix
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Easy (0/8)
Original knowledge check:�relative industry size — Answer
Correct answer: C — VC is far smaller than�both private and public equity
Why: C is the intended broad comparison. VC is a smaller segment of�private equity, and public-equity markets are much larger. This�wording is a directional recall check, not a matched numerical�comparison of AUM and market capitalization.
Other choices: A and D reverse the relative scale. B equates a�segment with the broader universe. E invents a regulatory cap.�Geography, date, and measurement still matter for a precise�comparison.
NVCA 2026 Yearbook, U.S. VC AUM chart, printed p. 12; PitchBook, 2025 Annual US PE Breakdown, AUM, p. 33; SIFMA, 2026 Capital Markets Fact Book findings,�U.S. equity-market size.
Devon Coombs CPA, MBA · Santa Clara University · FIN143 · Appendix
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Easy (0/8)
Original knowledge check:�venture capital versus buyouts
What most fundamentally distinguishes a venture capital investment�from a private equity buyout?
A. VC funds always charge a higher management fee than buyout�funds do
B. PE buyout funds never use any borrowed money in their deals
C. VC funds take controlling stakes in mature, cash-generating�firms
D. PE and VC funds both target the exact same net IRR range
E. VC generally takes minority stakes without acquisition leverage;�buyouts often acquire control using meaningful debt
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Easy (0/8)
Original knowledge check:�venture capital versus buyouts — Answer
Correct answer: E — VC generally takes�minority stakes without acquisition leverage;�buyouts often acquire control using meaningful debt
Why: E describes common investment structures: VC often buys�minority equity; buyouts often acquire control with acquisition debt.�There are exceptions to both patterns.
Other choices: A makes a universal fee claim. B excludes common�acquisition leverage. C describes a buyout pattern as VC. D assumes�identical return objectives across different strategies.
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Easy (0/8)
Original knowledge check: the carry recipient
Assumptions: Use the simplified three-role structure taught here; no�separate carry vehicle is used.
In the three-entity fund structure, which entity receives the carried�interest?
A. The general partner entity
B. The management company
C. The limited partnership itself
D. The limited partners directly
E. A separate escrow agent
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Easy (0/8)
Original knowledge check: the carry recipient — Answer
Correct answer: A — The general partner entity
Why: In the simplified structure, the GP entity receives carry. Real�structures can route carry through a separate vehicle, so the LPA and�entity documents determine the actual recipient.
Other choices: B confuses management fees with carry. C is the fund�vehicle. D identifies the capital providers. E may hold funds�temporarily but is not the economic carry beneficiary.
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Easy (0/8)
Original knowledge check: fee research
Metrick and Yasuda (2010) found which of the following about fund�economics?
A. Carry is the largest source of manager revenue for the average�fund
B. A preferred return is used by almost every single VC fund
C. Management fees above 1% are prohibited by regulation
D. Most manager revenue is fee-based, and hurdles are rarer in VC
E. VC and buyout funds carry an identical fee and hurdle structure
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Easy (0/8)
Original knowledge check: fee research — Answer
Correct answer: D — Most manager revenue is fee-based, and�hurdles are rarer in VC
Why: D best summarizes the study’s modeled expected manager�revenue and historical hurdle prevalence. It is not a claim about current�terms or actual partner compensation.
Other choices: A reverses the average modeled revenue mix. B�overstates VC hurdle prevalence. C invents a regulatory ceiling. E�ignores differences in the sample.
Devon Coombs CPA, MBA · Santa Clara University · FIN143 · Appendix
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Easy (0/8)
Original knowledge check: first distribution tier
Assumptions: Distributable cash is available after fees, liabilities, and�reserves are addressed. The modeled LPA returns all LP contributed�capital before carry.
In this simplified whole-fund waterfall, what is paid first?
A. Return of the LPs' capital
B. The GP's full 20% carried interest
C. The GP catch-up tier in full
D. The final year's management fee
E. A discretionary bonus to the LPs
Devon Coombs CPA, MBA · Santa Clara University · FIN143 · Appendix
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Easy (0/8)
Original knowledge check:�first distribution tier — Answer
Correct answer: A — Return of the LPs' capital
Why: The first investor-distribution tier returns LP contributed capital.�A preference, GP catch-up, and residual profit split can follow if the�agreement includes them and cash remains.
Other choices: B and C place carry before the capital-return priority. D�is a fund obligation addressed before this distributable-cash waterfall.�E is not a stated contractual tier.
Devon Coombs CPA, MBA · Santa Clara University · FIN143 · Appendix
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Easy (0/8)
Original knowledge check: deal-by-deal timing
How does an American (deal-by-deal) waterfall differ from a European�(whole-fund) waterfall?
A. The American waterfall always pays a strictly higher carry�percentage
B. The European waterfall skips returning LP capital entirely
C. The two are identical in essentially every respect
D. The American waterfall removes any need for a clawback
E. The American lets the GP earn carry per deal, before full return
Devon Coombs CPA, MBA · Santa Clara University · FIN143 · Appendix
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Easy (0/8)
Original knowledge check:�deal-by-deal timing — Answer
Correct answer: E — The American lets the GP earn carry per deal,�before full return
Why: E refers to the possibility of paying carry on a realized deal�before the entire fund’s capital-return threshold is met. The actual�timing depends on losses, costs, and the LPA.
Other choices: A confuses distribution timing with carry percentage.�B removes the whole-fund capital priority. C ignores the structural�difference. D removes a protection that may be especially important�when carry is paid early.
Devon Coombs CPA, MBA · Santa Clara University · FIN143 · Appendix
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Easy (0/8)
Original knowledge check: the J-curve
Why does a fund's cumulative net cash to LPs trace a J-curve?
A. Because carry is paid out entirely in year one
B. Because early capital calls and fees precede exits
C. Because LPs wire all of their capital on day one
D. Because management fees are never actually charged
E. Because portfolio companies are marked up immediately
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Easy (0/8)
Original knowledge check: the J-curve — Answer
Correct answer: B — Because early capital calls�and fees precede exits
Why: Early calls can finance investments and costs before exits�provide distributions. That cash timing can create a J-shaped pattern.�The fund is not guaranteed to cross back above zero.
Other choices: A reverses normal capital priority. C assumes all�commitments are funded immediately. D denies fees. E describes�valuation marks, which do not themselves distribute cash.
Devon Coombs CPA, MBA · Santa Clara University · FIN143 · Appendix
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Easy (0/8)
Original knowledge check: skewed venture outcomes
Horsley Bridge data from 1985 to 2014 showed roughly what about�VC returns?
A. Returns were spread evenly across all of the deals
B. The median VC deal returned roughly ten times capital
C. Historical sample: about 6% of deals drove roughly 60% of�returns
D. Losses were rare, well under 5% of the deals
E. Nearly every VC fund beat the public market
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Easy (0/8)
Original knowledge check:�skewed venture outcomes — Answer
Correct answer: C — Historical sample: about 6% of deals drove�roughly 60% of returns
Why: C matches the reported historical concentration of returns. The�sample supports an important portfolio lesson; it does not establish�the same result for every manager, vintage, or investment.
Other choices: A assumes even outcomes. B substitutes an�unsupported median. D understates the reported incidence of losses.�E turns deal-level concentration into a universal fund-versus-market�claim.
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Easy (0/8)
Original knowledge check: persistence
Assumptions: Interpret the choices as summaries of the historical�research discussed, not a claim about every fund or current market�conditions.
What does the evidence on performance persistence show for venture�capital?
A. VC persistence vanished completely after the year 2000
B. Persistence is identical in VC and buyout funds today
C. No private asset class shows any persistence at all
D. VC persistence has held while buyout's has faded
E. Only buyout funds still show any persistence today
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Easy (0/8)
Original knowledge check: persistence — Answer
Correct answer: D — VC persistence has held�while buyout's has faded
Why: D is the closest summary of the historical comparison. The�strength of the evidence depends on the period, metric, and�information available at fundraising; it is not a statement that buyout�persistence disappeared in every specification.
Other choices: A and E reverse the VC finding. B claims identical�current behavior. C rejects persistence entirely. None is supported by�the cited comparison.
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Easy (0/8)