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August Capital‘s announcement that it raised a $650 million fifth fund may be even more impressive than it initially appeared. PEHub reports that the fund is August’s first to include a 30 percent carried interest structure (the percentage of profits used to pay general partners at firms).
Even normally, 30 percent would be on the high side — VentureBeat Editor Matt Marshall tells me the industry standard is closer to 25 percent — but the deal comes at a time of increasing pressure for VCs. Given the financial crash, it’s no surprise that venture funds are having a hard time raising money, and limited partners investing in those funds are becoming impatient to see better returns. So why did August get such a sweet deal? PEHub quotes a limited partner in the fund as saying, “They deserved the higher carry since they were one of the only firms to have actually earned carry in their last funds.”
We asked David Hornik, a partner at August, if he could confirm the report. He replied:
Sorry. We don’t comment on the terms of our funds. I can say that we have had some great outcomes since 2000: Seagate went public, Atheros went public, Shopping.com went public and was bought by eBay for over half a billion dollars, Crystal Decisions filed to go public and was bought by Business Objects for just under a billion dollars, Postini filed to go public and was bought by Google for over a half a billion dollars. And we’re bullish about our current portfolio, as are our limited partners.
Of course, the firm may have to pay higher taxes on that 30 percent.