Question
Suppose venture capital firm GSB partners raised $ 150$150million of committed capital. Each year over the 1111-yearlife of thefund,2.5 %2.5%of this committed capital will be
Suppose venture capital firm GSB partners raised $ 150$150million of committed capital. Each year over the 1111-yearlife of thefund,2.5 %2.5%of this committed capital will be used to payGSB's management fee. As is typical in the venture capitalindustry, GSB will only invest $ 108.75$108.75million(committed capital less lifetime managementfees). At the end of 1111years the investments made by the fund are worth $ 700$700million. GSB also charges 15 %15%carried interest on the profits of the fund(net of managementfees).
a. Assuming the $ 108.75$108.75million of invested capital is investedimmediately, and all proceeds were received at the end of 1111years, what is the IRR of the investments GSB partnersmade? Thatis, compute the IRR ignoring all management fees.
b. Ofcourse, as aninvestor, or limitedpartner, you are more interested in your ownIRR, that is the IRR including all fees paid. Assuming that investors gave GSB partners the full $ 150$150million upfront, what is the IRR forGSB's limited partners(that is, the IRR net of all feespaid).
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