Pays the salaries and all of the fund expenses like legal fees
Management fees are paid out each year usually for about 7-10 years or when the fund ends
Carried Interest
Profit that the VC keeps after returning all the capital to the LPs
VCs typically get around 20% of profits from carry
VCs that are successful can have carry in the millions
Example.
Fund X has a $100M fund. Assuming they have 0 returns, they make $2M each year from management fees.
Assuming Fund X has some amazing companies and after the life of Fund X, they return $200M. They stand to make that $2M each year for the life of the fund + $20M from carry ($200m-$100m = $100m x 0.2 = $20m)