Blueprint Intelligence / Firm Narrative and Track Record / Gross versus net returns, presenting prior deals the way allocators read them
Firm Narrative and Track Record
Gross versus net returns, presenting prior deals the way allocators read them
Gross returns measure what a deal actually earned. Net returns measure what an investor would have kept after fees and carry, and for a pre-fund deal, no standard formula converts one into the other.
Gross IRR and gross MOIC describe a deal's own performance, unaffected by any fee or carry structure. Net IRR and net MOIC describe what an investor actually receives after a manager's management fee and carried interest are deducted. Institutional LPs read net figures by default, since net is what actually lands in their own portfolio, which puts a first-time manager in a real bind: a prior SPV or angel deal never ran through a fee-and-carry structure at all, so there is no audited net figure to report, only a gross one.
Why there is no accepted conversion formula
Converting a fund's gross return into a net one relies on the ratio between that same fund's already-known net and gross IRR, a ratio that only exists once a fund has both figures to compare. That describes a fund already in operation, not a pre-fund SPV or angel check that never had a management fee or carry deducted from it in the first place. There is no comparable, industry-accepted method for converting an individual deal's gross return into what it would have earned net, inside a fund vehicle that did not yet exist when the deal was made.
What to do instead of guessing
- Report gross, and say so plainly. State the figure as gross IRR or gross MOIC, not as an unqualified return, so the reader is never left inferring which one they are looking at.
- If a net-equivalent estimate is useful context, show the assumption, not just the number. State the specific management fee and carry terms used to produce the estimate, since standard terms for an emerging manager's fund today run roughly 2 to 2.5 percent in management fees during the investment period and 20 percent carry, typically with no hurdle rate. Label the resulting net figure as an illustrative estimate under those stated terms, not as an audited calculation.
- Never blend the two. A track record that reports gross for the deals that look strongest and a rough net estimate for the rest, with no label distinguishing them, reads as exactly the kind of inconsistency institutional LPs are trained to catch.
Standard terms for an emerging venture manager's fund today run roughly 2 to 2.5 percent in annual management fees during the investment period and 20 percent carried interest, typically with no hurdle rate, the assumptions worth stating explicitly if a net-equivalent figure is shown at all.
Why the honest version is more credible, not less
A GP who presents a clearly labeled gross figure, states the fee and carry assumptions behind any net estimate, and explains why no audited net number exists yet is describing the actual state of the evidence. A GP who presents an unlabeled blended figure that implies more precision than the underlying deals can support is the one an experienced diligence team catches, and the catch itself becomes the finding, regardless of how the fund actually performed.
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