AS SILICON VALLEY denizens know but others might not: Venture capital is the cash engine that fuels the tech industry. Venture capital firms raise money from rich individuals, wealthy families, universities, foundations, pension funds, funds-of-funds, government investment arms, and others. The money goes into a fund, which usually lasts three to five years. They invest that money in startups. Different VC firms invest in different stages, which range from angel to seed money to Series A to B to C rounds of cash, and so on. Angels invest the first money that a founder raises, often before there is even a team.

Following the money can be confusing. For their work and investment, most VC firms take an annual management fee of around 2.5 percent of the fund for ten years, paid by their investors. They also take what’s called “carry,” Following the money can be confusing. For their work and investment, most VC firms take an annual management fee of around 2.5 percent of the fund for ten years, paid by their investors. They also take what’s called “carry,” or carried interest, usually 20 to 30 percent of any gains. If you have a $1 billion fund—which is smaller than Kleiner’s was when I left—that charges fees at the top end, $250 million of that goes straight to the partners just for management fees. Bam, they get $250 million over ten years. Then if, say, you triple that money in ten years, the partners would get another $600 million as carry from their share of the gains. The bigger the company’s numbers get, the more ridiculous the profit for the venture capital firm.