Carried interest (carry, promote)

Definition

The operator's share of profits, once investors are made whole.

Why It Matters

It is where a searcher's own upside lives. Stanford's search fund primer describes the usual grant as three equal tranches: one on acquiring a company, one over about four years of staying, and one when investor returns clear agreed hurdles. Only that last tranche pays for clearing the bar, so the hurdle schedule deserves as much attention as the percentage.

In numbers: On $10M of profit above the preferred return, a 20% carry pays the sponsor $2M and leaves $8M for the investors.