Most studios optimize their own ownership. The case for handing founders a slice of fund carry: the alignment math, tax mechanics, and trade-offs.
Disclosure: AOS designed the model described here and would benefit from founders and LPs finding it attractive. Figures are illustrative design parameters, not commitments. None of this is tax advice; talk to a qualified professional about your situation.
Carry is the fund's upside. Almost everywhere, it flows to the GP and the GP alone. We think a slice should flow to the founders who actually build the companies. Here is the argument, and the catch.
Carried interest is the share of investment profits a fund's managers keep, classically 20 percent above a hurdle. It is the real money in fund management, the reason GPs do the job. And almost universally, it goes to the GP and stops there. Founders, the people whose companies generate the profits the carry is computed on, see none of it. They have their equity in their own company and nothing in the fund that backed them.
We do something less common: we put founders into the carry pool. A defined slice of the fund's carried interest is set aside for the founders of the ventures the studio builds. This is not charity, and we are not going to dress it up as virtue. It is an alignment mechanism with a real economic logic, and it has trade-offs we will state plainly. But it is also, we think, simply the right structure, and "equitable venture" is the name we give it.
Quick grounding so the rest lands. A fund raises capital from LPs, invests it, and returns profits. Above a hurdle (often around an 8 percent preferred return to LPs), the GP keeps a share of the profit, the carry, classically 20 percent. That carry is the GP's leveraged upside, the thing that makes fund management worth doing.
In the standard model, the carry is split among the GP's partners. Founders of portfolio companies are not in that split. Their upside is entirely inside their own company's equity, and the two pools, fund carry and founder equity, never touch. The founder wins only if their specific company wins. The fund wins across the portfolio. Misaligned by construction, even when everyone is acting in good faith.
The argument is alignment, and it runs in both directions.
A founder in the carry pool now has a stake in the fund's whole portfolio, not only their own company. That changes behavior in useful ways. It makes founders more willing to share what they learn with other ventures, because another venture's success now touches their own pocket too. It makes the founder community inside the studio cooperative rather than purely competitive for the studio's attention. And it ties the most important people in the system, the builders, to the long-run success of the thing they are part of, not just their slice of it.
It also signals something to the founders the studio most wants to attract. A studio that shares carry is telling experienced founders: we win when you win, across the board, and we have put that in the structure rather than the pitch. For a founder choosing between a studio that optimizes its own ownership and one that shares the upside, the signal is not subtle, and it sorts for exactly the cooperative, long-horizon builders a portfolio wants.
Most studios optimize for how much of each company they keep. The cheaper, more durable optimization is how aligned the founders are with each other and with the fund. Carry sharing buys the second thing.
Put rough numbers on it so it is not just a sentiment. Suppose the fund returns a meaningful profit and the carry pool is, say, 20 percent of profits above the hurdle. Now suppose a defined slice of that carry, a minority share, is reserved for the founder pool and divided among the founders of ventures that cleared the gate.
For any one founder, the carry slice is small next to their own company's equity, and it should be. Rather than rivaling the founder's primary upside, it adds a second, portfolio-wide incentive on top of the first, company-specific one. What matters is not the size of the slice but the change in incentive: a founder who was indifferent to the rest of the portfolio now has a reason to care, and that reason compounds across a cooperative founder community in ways a cap table alone never could.
The cost to the GP is real and bounded: the GP keeps less carry than it otherwise would. We treat that as a deliberate purchase. We are buying alignment and founder selection with carry we would otherwise have kept. Whether that purchase is worth it depends on how much the cooperation and the selection effect are worth, which is a judgment, not a formula, and we are making it on purpose.
This is where it gets genuinely technical, and where the disclosure above earns its place. None of this is tax advice.
Carried interest is typically structured as a profits interest, which in the US has historically been taxed as capital gains rather than ordinary income when held to the relevant period, under current rules including the holding-period requirements that apply to carried interest. Extending a profits interest to founders means the structure has to be drafted so the founders' slice qualifies on the same footing, which is a real drafting exercise, not a checkbox, and the rules have moved over time and may move again. Vesting, holding periods, and the precise legal form all matter, and getting them wrong converts a capital-gains outcome into an ordinary-income one, which would gut the benefit.
The honest summary: the tax treatment can be favorable, but only if the structure is built correctly, and the rules are both complex and subject to change. We flag this not to scare anyone off but because pretending tax structuring is simple is exactly the kind of thing this brand does not do. Anyone evaluating this for real should run it past a qualified professional against the current code, not a blog post.
Three of them. An alignment story that lists no costs isn't an argument, it's a sales pitch, so here are the costs.
The GP earns less. That is the direct cost and there is no way around it. We think the alignment is worth more than the foregone carry, but a GP that disagrees has a coherent position, and we are not going to pretend the trade is free.
It adds structural complexity. More pools, more vesting schedules, more tax surface, more that can be drafted wrong. Complexity is a cost even when the structure is sound.
And it is not a silver bullet. Carry sharing aligns incentives at the margin. It does not turn a weak founder into a strong one or a bad venture into a good one. It is one mechanism among several, and overselling it would be its own kind of dishonesty.
We do it anyway, because the alignment math and the founder-selection signal are, on balance, worth the cost, and because handing the builders a stake in the thing they build is the structure we would want if we were on their side of the table. Which, through the studio, we are.
The founder-side equity picture this sits on top of is in The Founder-in-Residence Bargain. The fund mechanics that the carry rides on, including how follow-on ownership is captured, are in PRCV Explained.
Read next: The Six-Week Decision Cycle: How a Venture Studio Runs One
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