What’s LP and GP? I’m not familiar with these abbreviations. Long Positions and Gross Positions?

Have you had a look at the Get Funded page, especially the below section?

Your Compensation

If your algorithm gets funded, we will split the returns between the
investor, us, and you. Our agreement pays authors a royalty that is
based on the performance of the strategy.

More specifically: funded algorithms are combined into the investment
strategy operated by Quantopian. 10% of the investment strategy’s net
profits are set aside in a royalty pool to align incentives for
authors, Quantopian, and investors in the strategy. Each author’s
share of that pool is proportional to their allocation or weight
within the broader Quantopian investment strategy.

LP is a Limited Partner (an investor in the fund) and GP is the General Partner (the fund itself). Yes, thank you, I have looked at the get funded page but it is still not very clear in my opinion.

I'll try to be more clear- most traditional funds have whats called the 2 and 20 structure. As in, the fund takes 2% annually in fees, and collects 20% in carry. Typically, profits from carried interest are then allocated to either a firm's balance sheet or to an employee compensation pool.

When Quantopian says, "10% of the investment strategy's net profits are set aside" what do they mean? Is it 10% of all profits due to LPs, or is it 10% of profits due to the fund itself.

Quantopian creates a royalty pool that is equal to 10% of the net profits of the investment strategies (or algos). The pool is only based on the performance of the investments in the fund. Any management fees are separate and not included in the royalty pool calculation. So, "10% of the investment strategy's net profits are set aside" means 10% of the profits generated from the trading of securities by the strategy(s) are set aside in the royalty pool. Management fees are not included in the pool.

Hope that makes it more clear?

Hi Dan, thank you so much for reaching out. I hope I'm not being obnoxious but I just want to be super-clear. Would you mind answering the hypothetical question I posed earlier? Which of the 3 scenarios is the most accurate below?

Scenario 1 (Net to LP example):
1) A trading algorithm manages $100, and is the only algorithm in the fund
2) At the end of the fiscal year, the fund now has $110. So the strategy has netted $10 in profits.
3) The developer then receives $1 (10% of $10). The fund and its LP's then split the remaining $9 in whatever fashion their PPM outlines.

Scenario 2 (Net to GP example):
1) A trading algorithm manages $100, and is the only algorithm in the fund
2) At the end of the fiscal year, the fund now has $110. The strategy has netted $10 in profits, but this does NOT represent the "net profits" referenced in the licencing agreement.
3) First, the GP takes out ~20% ($2) in carried interest and books this as profit to the firm. Then the remaining $8 is returned to the original investors, or LP's.
4) Finally, the GP pays the algo-developer 20 cents, which represents 10% of its own profits.

Scenario 3 (Net to GP example with hurdles and catch-ups):
1) Same as scenario 2, except now there's a 7% hurdle rate that the firm must meet before they are compensated as well as a 50:50 catch up clause. The community would not be privy to this information unless we knew the terms of the PPM.
2) Before the GP books any carried interest as profits, the LP's first take out $7. There is now $3 of proceeds remaining. Now the GP and LP split the remaining proceeds 50:50 until the GP is made whole. The GP books $1.5 to its ledger.
3) Finally, the GP pays out 10% (or 15 cents) to its developer.

Again, I hope this doesn't sound overly knit-picky. I'm truly just trying to understand how the fund is structured as I do this type of work for a living and I understand how crucial it is that terms like "Net Profits" are well defined. It can have a very material impact on compensation.

Found an answer for those interested:

Dan Dunn (An employee at Quantopian) outlined the profit sharing model in 2016 with the following example. I will assume this is still correct unless Quantopian says otherwise. Dan's response implies that Scenario#1 in my previous response is the most accurate. "Net Profit" refers to proceeds generated from the algorithm and NOT accounting profit due to the general partner.

Dan Dunn Example:
"allocation: $3 million, levered 6X to $18 million trading allocation algorithm net profit: $1.44 million return in one year (8% return)
author's share of net profit: 10%
author's royalty payment: $144,000"

Any heroes among us that have actually been paid out >$100k yet? Would love to hear your story and investing philosophy.

Spencer, that sounds correct. Take note though that as of last year the fund has pivoted to a "signal combination" approach:
https://www.quantopian.com/posts/quantopian-business-update

That post will explain how royalties are paid based on each algorithm's weight in the combined signal.