Question

Suppose that Galt Ventures, a venture capital firm, raised $250 million of committed capital. Each year over the 10-year life of the fund, 2% of this committed capital will be used to pay Galt's management fee. As is typical in the venture capital industry, Galt will only invest $200 million (committed capital less lifetime management fees). At the end of 10 years, the investments made by the fund are worth $800 million. Galt also charges 20% carried interest on the profits of the fund (net of management fees). Assume that Galt collects the $250 of committed capital and invests $200 million of it immediately. Also assume that Galt collects all proceeds from its investments at the end of the ten year life.

The IRR on the investment of a limited partner into Galt Ventures net of all management fees and expenses is closest to:

a.7.8%

b. 9.9%

c.12.4%

d.14.9%

Answer 1