A Guide to Sharing Carry

Recent updates in technology and regulation contributed to a rise in participation in private markets, particularly for individuals investing as a group. While group investments are typically led by a single “sponsor,” there are often multiple individuals that contribute to assessing and managing a deal. Depending on their level and type of contribution, these individuals may deserve, and receive, a portion of the deal sponsor’s carry as compensation. This is known as “carry sharing.”

What is carried interest?

Carried interest is a share of any profits that the deal sponsor receives as compensation for managing the deal. In venture capital, it’s common for the sponsor of an SPV or fund (the “GP”) to receive a standard 20% carry of the profits made from their investments. Carried interest is only paid after investors’ initial capital has been returned. In the case of a fund making multiple investments, the fund manager will only receive carry once each investor, or limited partner, has received a return on their initial investment. As a result, the manager typically has to wait until they have enough capital to return to initial investors and will not receive any profit from a fund’s early liquidity events.

Many investors have turned to SPVs as a faster, more efficient way to deploy capital and see returns. Deal sponsors are able to receive carry on a deal-by-deal basis when they invest this way. Since SPVs are generally limited to a single investment, the lead only needs to return capital on a successful investment once before receiving carried interest on those profits. If the return to an SPV is less than the initial investment, the deal sponsor does not typically receive any portion of the return.

How does carry sharing work?

A deal sponsor will share carried interest, or carry share, with another individual who contributed to managing an investment, or helped the sponsor in ways that contributed to the success of the deal.

Generally, a carry share is executed using a “side letter,” which is a secondary agreement used to create bespoke terms between a deal sponsor and an investor, in addition to the terms of the SPV that all other investors receive. The side letter agreement, which is signed by both parties as well as the fund administrator, outlines the percentage of carry that the carry share recipient will receive at a liquidity event. Similarly to the deal sponsor, the carry share recipient will only receive their portion of the carry once the investment has returned at least 1x to its investors.

What are the benefits of carry sharing?

Carry sharing can be especially powerful for groups of investors working together and contributing to each other’s success, generally referred to as syndicates. Syndicates typically have a primary “deal lead” who is responsible for bringing deals to the group, performing due diligence, and supporting the portfolio companies. But it’s near impossible for an individual to do all this work on their own. They are often supported in various ways by other participating members of the group based on individual areas of expertise. For instance, one syndicate member may pitch in on due diligence given their specific domain knowledge, and another may support a portfolio founder on hiring for a specific role or building out their go-to-market strategy. The syndicate lead may choose to share a portion of their potential 20% carry from a specific deal with members of the group to compensate them for their contribution, without violating specific requirements around securities brokers and dealers.While participation in venture deals is generally limited to Accredited Investors, you do not have to be accredited in order to receive shared carry on a deal. This creates an opportunity for just about anyone to participate (albeit indirectly) in venture investing. By contributing to sourcing, evaluating, and managing a deal, a non-Accredited Investor can build their own track record while simultaneously generating wealth. This expands and benefits the entire ecosystem.

What are some of the challenges of carry sharing?

For emerging VCs, carry sharing can be a powerful way to expand your network. Offering someone a share of your carry may incentivize them to share the opportunity with members of their network and thereby drive capital to the deal. But it’s important to be mindful of the regulation that governs the use of carry sharing.Per the SEC, any individual receiving compensation (through carry, cash, or any other form) as part of a VC deal must have contributed to sourcing, diligencing, or negotiating the terms of the deal. An individual cannot be compensated solely for influencing others to invest in a deal. This means that it’s fair game to share carry with someone who introduced you to a founder, helped you write an investment memo, contributed subject matter expertise to the diligence process, or supported the deal execution from an operational perspective. However, if an individual drove capital to a deal (i.e. made introductions to other investors or shared an investment opportunity with their network) but did none of the above, then receiving compensation (via a carry share) would put them in broker-dealer territory in the eyes of the SEC. A broker-dealer is a person or organization that buys and sells securities on behalf of someone else (typically a paying client). Generally, VC investors want to avoid this activity as broker-dealers are required to register with the SEC and FINRA. This registration process, and the regular requirements of registered broker-dealers, is complicated, time-intensive, and costly. Ultimately, the majority of venture investors can leverage carry sharing while avoiding these requirements – so long as they are intentional about operating your investor network.

Using carry sharing to expand your network – compliantly

As mentioned above, carry sharing can be a powerful tool for venture investors who are looking to expand their network. If you’ve recently launched a syndicate and are looking to grow your group, incentivizing syndicate members to share investment opportunities with their networks seems like an obvious choice. Luckily, there are ways to leverage this approach in a compliant manner by involving syndicate members in the process of evaluating or managing a deal. This could mean introducing an individual to a founder to better understand their business model, asking them to contribute to a deal memo to share with the syndicate, or having them actively manage the deal after the investment has been made. So long as an individual has participated in one of these activities, they can help drive capital to a deal and receive carry without being considered a broker-dealer.

Hear from some members of the Sydecar community about how they (compliantly) using carry sharing to build community:

“At Pearl Influential Capital, we work with deal co-leads on many of our investments. Bringing co-leads in to provide additional support to deal management and execution has allowed us to scale our community effectively while driving more investments for our portfolio.” - Alyssa Arnold, Co-Founder of Pearl Influential Capital

“Sydecar’s carry share feature enhanced our scout program, making it easy to assign carry to individuals contributing in scouting and conducting due diligence on a deal without all the back and forth we experienced before.”- Michele Schueli, Managing Partner at ARMYN Capital

Time for a pop quiz!

We hope you learned something from this article - now it’s time to put your new knowledge to the test!

Jamie runs a community-driven syndicate where she leads investments into pre-seed and seed stage fintech companies in the US. In the following scenarios, can Jamie share a portion of her carry with a syndicate member (who is not a broker-dealer) in exchange for participation in the deal?

John, a syndicate member, introduces Jamie to a founder, and Jamie decides to invest into their company. John has never met the founder in real life and does not contribute to due diligence. Can John receive carry?
Margaret has a background working in fintech startups. Jamie calls Margaret because she is doing diligence on a deal and wants to get Margaret’s perspective on the space. Can Margaret receive carry?
Julie is super excited about a new company that the syndicate is investing into, so she emails a couple investor friends to ask if they want to participate. One of them ends up investing in the deal through Jamie’s syndicate. Can Julie receive carry?
Jamie has brought on her friend, Robert, to support the syndicate in a part time capacity. He is responsible for setting up deal pages in Sydecar, adding investors to the deals, and coordinating with portfolio companies when they have updates to share. Robert also occasionally shares the investment opportunities with individuals in his network that Jamie doesn’t know directly. Can Robert receive carry?

Answer key: Yes! Even though John hasn't met the founder in person, his introduction still counts as deal sourcing.Yes! Since Margaret contributed to due diligence, she is eligible to receive carry.No! Julie’s excitement about the deal doesn’t qualify as identifying, evaluating, or managing the deal, so she cannot receive carry solely for driving capital to the opportunity.Yes! Since Robert helped actively manage the deal in addition to sharing it with his network, he can be compensated for his involvement.

Recent updates in technology and regulation contributed to a rise in participation in private markets, particularly for individuals investing as a group. While group investments are typically led by a single “sponsor,” there are often multiple individuals that contribute to assessing and managing a deal. Depending on their level and type of contribution, these individuals may deserve, and receive, a portion of the deal sponsor’s carry as compensation. This is known as “carry sharing.”

What is carried interest?

Carried interest is a share of any profits that the deal sponsor receives as compensation for managing the deal. In venture capital, it’s common for the sponsor of an SPV or fund (the “GP”) to receive a standard 20% carry of the profits made from their investments. Carried interest is only paid after investors’ initial capital has been returned. In the case of a fund making multiple investments, the fund manager will only receive carry once each investor, or limited partner, has received a return on their initial investment. As a result, the manager typically has to wait until they have enough capital to return to initial investors and will not receive any profit from a fund’s early liquidity events.

Many investors have turned to SPVs as a faster, more efficient way to deploy capital and see returns. Deal sponsors are able to receive carry on a deal-by-deal basis when they invest this way. Since SPVs are generally limited to a single investment, the lead only needs to return capital on a successful investment once before receiving carried interest on those profits. If the return to an SPV is less than the initial investment, the deal sponsor does not typically receive any portion of the return.

How does carry sharing work?

A deal sponsor will share carried interest, or carry share, with another individual who contributed to managing an investment, or helped the sponsor in ways that contributed to the success of the deal.

Generally, a carry share is executed using a “side letter,” which is a secondary agreement used to create bespoke terms between a deal sponsor and an investor, in addition to the terms of the SPV that all other investors receive. The side letter agreement, which is signed by both parties as well as the fund administrator, outlines the percentage of carry that the carry share recipient will receive at a liquidity event. Similarly to the deal sponsor, the carry share recipient will only receive their portion of the carry once the investment has returned at least 1x to its investors.

What are the benefits of carry sharing?

Carry sharing can be especially powerful for groups of investors working together and contributing to each other’s success, generally referred to as syndicates. Syndicates typically have a primary “deal lead” who is responsible for bringing deals to the group, performing due diligence, and supporting the portfolio companies. But it’s near impossible for an individual to do all this work on their own. They are often supported in various ways by other participating members of the group based on individual areas of expertise. For instance, one syndicate member may pitch in on due diligence given their specific domain knowledge, and another may support a portfolio founder on hiring for a specific role or building out their go-to-market strategy. The syndicate lead may choose to share a portion of their potential 20% carry from a specific deal with members of the group to compensate them for their contribution, without violating specific requirements around securities brokers and dealers.While participation in venture deals is generally limited to Accredited Investors, you do not have to be accredited in order to receive shared carry on a deal. This creates an opportunity for just about anyone to participate (albeit indirectly) in venture investing. By contributing to sourcing, evaluating, and managing a deal, a non-Accredited Investor can build their own track record while simultaneously generating wealth. This expands and benefits the entire ecosystem.

What are some of the challenges of carry sharing?

For emerging VCs, carry sharing can be a powerful way to expand your network. Offering someone a share of your carry may incentivize them to share the opportunity with members of their network and thereby drive capital to the deal. But it’s important to be mindful of the regulation that governs the use of carry sharing.Per the SEC, any individual receiving compensation (through carry, cash, or any other form) as part of a VC deal must have contributed to sourcing, diligencing, or negotiating the terms of the deal. An individual cannot be compensated solely for influencing others to invest in a deal. This means that it’s fair game to share carry with someone who introduced you to a founder, helped you write an investment memo, contributed subject matter expertise to the diligence process, or supported the deal execution from an operational perspective. However, if an individual drove capital to a deal (i.e. made introductions to other investors or shared an investment opportunity with their network) but did none of the above, then receiving compensation (via a carry share) would put them in broker-dealer territory in the eyes of the SEC. A broker-dealer is a person or organization that buys and sells securities on behalf of someone else (typically a paying client). Generally, VC investors want to avoid this activity as broker-dealers are required to register with the SEC and FINRA. This registration process, and the regular requirements of registered broker-dealers, is complicated, time-intensive, and costly. Ultimately, the majority of venture investors can leverage carry sharing while avoiding these requirements – so long as they are intentional about operating your investor network.

Using carry sharing to expand your network – compliantly

As mentioned above, carry sharing can be a powerful tool for venture investors who are looking to expand their network. If you’ve recently launched a syndicate and are looking to grow your group, incentivizing syndicate members to share investment opportunities with their networks seems like an obvious choice. Luckily, there are ways to leverage this approach in a compliant manner by involving syndicate members in the process of evaluating or managing a deal. This could mean introducing an individual to a founder to better understand their business model, asking them to contribute to a deal memo to share with the syndicate, or having them actively manage the deal after the investment has been made. So long as an individual has participated in one of these activities, they can help drive capital to a deal and receive carry without being considered a broker-dealer.

Hear from some members of the Sydecar community about how they (compliantly) using carry sharing to build community:

“At Pearl Influential Capital, we work with deal co-leads on many of our investments. Bringing co-leads in to provide additional support to deal management and execution has allowed us to scale our community effectively while driving more investments for our portfolio.” - Alyssa Arnold, Co-Founder of Pearl Influential Capital

“Sydecar’s carry share feature enhanced our scout program, making it easy to assign carry to individuals contributing in scouting and conducting due diligence on a deal without all the back and forth we experienced before.”- Michele Schueli, Managing Partner at ARMYN Capital

Time for a pop quiz!

We hope you learned something from this article - now it’s time to put your new knowledge to the test!

Jamie runs a community-driven syndicate where she leads investments into pre-seed and seed stage fintech companies in the US. In the following scenarios, can Jamie share a portion of her carry with a syndicate member (who is not a broker-dealer) in exchange for participation in the deal?

John, a syndicate member, introduces Jamie to a founder, and Jamie decides to invest into their company. John has never met the founder in real life and does not contribute to due diligence. Can John receive carry?
Margaret has a background working in fintech startups. Jamie calls Margaret because she is doing diligence on a deal and wants to get Margaret’s perspective on the space. Can Margaret receive carry?
Julie is super excited about a new company that the syndicate is investing into, so she emails a couple investor friends to ask if they want to participate. One of them ends up investing in the deal through Jamie’s syndicate. Can Julie receive carry?
Jamie has brought on her friend, Robert, to support the syndicate in a part time capacity. He is responsible for setting up deal pages in Sydecar, adding investors to the deals, and coordinating with portfolio companies when they have updates to share. Robert also occasionally shares the investment opportunities with individuals in his network that Jamie doesn’t know directly. Can Robert receive carry?

Answer key: Yes! Even though John hasn't met the founder in person, his introduction still counts as deal sourcing.Yes! Since Margaret contributed to due diligence, she is eligible to receive carry.No! Julie’s excitement about the deal doesn’t qualify as identifying, evaluating, or managing the deal, so she cannot receive carry solely for driving capital to the opportunity.Yes! Since Robert helped actively manage the deal in addition to sharing it with his network, he can be compensated for his involvement.

Recent updates in technology and regulation contributed to a rise in participation in private markets, particularly for individuals investing as a group. While group investments are typically led by a single “sponsor,” there are often multiple individuals that contribute to assessing and managing a deal. Depending on their level and type of contribution, these individuals may deserve, and receive, a portion of the deal sponsor’s carry as compensation. This is known as “carry sharing.”

What is carried interest?

Carried interest is a share of any profits that the deal sponsor receives as compensation for managing the deal. In venture capital, it’s common for the sponsor of an SPV or fund (the “GP”) to receive a standard 20% carry of the profits made from their investments. Carried interest is only paid after investors’ initial capital has been returned. In the case of a fund making multiple investments, the fund manager will only receive carry once each investor, or limited partner, has received a return on their initial investment. As a result, the manager typically has to wait until they have enough capital to return to initial investors and will not receive any profit from a fund’s early liquidity events.

Many investors have turned to SPVs as a faster, more efficient way to deploy capital and see returns. Deal sponsors are able to receive carry on a deal-by-deal basis when they invest this way. Since SPVs are generally limited to a single investment, the lead only needs to return capital on a successful investment once before receiving carried interest on those profits. If the return to an SPV is less than the initial investment, the deal sponsor does not typically receive any portion of the return.

How does carry sharing work?

A deal sponsor will share carried interest, or carry share, with another individual who contributed to managing an investment, or helped the sponsor in ways that contributed to the success of the deal.

Generally, a carry share is executed using a “side letter,” which is a secondary agreement used to create bespoke terms between a deal sponsor and an investor, in addition to the terms of the SPV that all other investors receive. The side letter agreement, which is signed by both parties as well as the fund administrator, outlines the percentage of carry that the carry share recipient will receive at a liquidity event. Similarly to the deal sponsor, the carry share recipient will only receive their portion of the carry once the investment has returned at least 1x to its investors.

What are the benefits of carry sharing?

Carry sharing can be especially powerful for groups of investors working together and contributing to each other’s success, generally referred to as syndicates. Syndicates typically have a primary “deal lead” who is responsible for bringing deals to the group, performing due diligence, and supporting the portfolio companies. But it’s near impossible for an individual to do all this work on their own. They are often supported in various ways by other participating members of the group based on individual areas of expertise. For instance, one syndicate member may pitch in on due diligence given their specific domain knowledge, and another may support a portfolio founder on hiring for a specific role or building out their go-to-market strategy. The syndicate lead may choose to share a portion of their potential 20% carry from a specific deal with members of the group to compensate them for their contribution, without violating specific requirements around securities brokers and dealers.While participation in venture deals is generally limited to Accredited Investors, you do not have to be accredited in order to receive shared carry on a deal. This creates an opportunity for just about anyone to participate (albeit indirectly) in venture investing. By contributing to sourcing, evaluating, and managing a deal, a non-Accredited Investor can build their own track record while simultaneously generating wealth. This expands and benefits the entire ecosystem.

What are some of the challenges of carry sharing?

For emerging VCs, carry sharing can be a powerful way to expand your network. Offering someone a share of your carry may incentivize them to share the opportunity with members of their network and thereby drive capital to the deal. But it’s important to be mindful of the regulation that governs the use of carry sharing.Per the SEC, any individual receiving compensation (through carry, cash, or any other form) as part of a VC deal must have contributed to sourcing, diligencing, or negotiating the terms of the deal. An individual cannot be compensated solely for influencing others to invest in a deal. This means that it’s fair game to share carry with someone who introduced you to a founder, helped you write an investment memo, contributed subject matter expertise to the diligence process, or supported the deal execution from an operational perspective. However, if an individual drove capital to a deal (i.e. made introductions to other investors or shared an investment opportunity with their network) but did none of the above, then receiving compensation (via a carry share) would put them in broker-dealer territory in the eyes of the SEC. A broker-dealer is a person or organization that buys and sells securities on behalf of someone else (typically a paying client). Generally, VC investors want to avoid this activity as broker-dealers are required to register with the SEC and FINRA. This registration process, and the regular requirements of registered broker-dealers, is complicated, time-intensive, and costly. Ultimately, the majority of venture investors can leverage carry sharing while avoiding these requirements – so long as they are intentional about operating your investor network.

Using carry sharing to expand your network – compliantly

As mentioned above, carry sharing can be a powerful tool for venture investors who are looking to expand their network. If you’ve recently launched a syndicate and are looking to grow your group, incentivizing syndicate members to share investment opportunities with their networks seems like an obvious choice. Luckily, there are ways to leverage this approach in a compliant manner by involving syndicate members in the process of evaluating or managing a deal. This could mean introducing an individual to a founder to better understand their business model, asking them to contribute to a deal memo to share with the syndicate, or having them actively manage the deal after the investment has been made. So long as an individual has participated in one of these activities, they can help drive capital to a deal and receive carry without being considered a broker-dealer.

Hear from some members of the Sydecar community about how they (compliantly) using carry sharing to build community:

“At Pearl Influential Capital, we work with deal co-leads on many of our investments. Bringing co-leads in to provide additional support to deal management and execution has allowed us to scale our community effectively while driving more investments for our portfolio.” - Alyssa Arnold, Co-Founder of Pearl Influential Capital

“Sydecar’s carry share feature enhanced our scout program, making it easy to assign carry to individuals contributing in scouting and conducting due diligence on a deal without all the back and forth we experienced before.”- Michele Schueli, Managing Partner at ARMYN Capital

Time for a pop quiz!

We hope you learned something from this article - now it’s time to put your new knowledge to the test!

Jamie runs a community-driven syndicate where she leads investments into pre-seed and seed stage fintech companies in the US. In the following scenarios, can Jamie share a portion of her carry with a syndicate member (who is not a broker-dealer) in exchange for participation in the deal?

John, a syndicate member, introduces Jamie to a founder, and Jamie decides to invest into their company. John has never met the founder in real life and does not contribute to due diligence. Can John receive carry?
Margaret has a background working in fintech startups. Jamie calls Margaret because she is doing diligence on a deal and wants to get Margaret’s perspective on the space. Can Margaret receive carry?
Julie is super excited about a new company that the syndicate is investing into, so she emails a couple investor friends to ask if they want to participate. One of them ends up investing in the deal through Jamie’s syndicate. Can Julie receive carry?
Jamie has brought on her friend, Robert, to support the syndicate in a part time capacity. He is responsible for setting up deal pages in Sydecar, adding investors to the deals, and coordinating with portfolio companies when they have updates to share. Robert also occasionally shares the investment opportunities with individuals in his network that Jamie doesn’t know directly. Can Robert receive carry?

Answer key: Yes! Even though John hasn't met the founder in person, his introduction still counts as deal sourcing.Yes! Since Margaret contributed to due diligence, she is eligible to receive carry.No! Julie’s excitement about the deal doesn’t qualify as identifying, evaluating, or managing the deal, so she cannot receive carry solely for driving capital to the opportunity.Yes! Since Robert helped actively manage the deal in addition to sharing it with his network, he can be compensated for his involvement.