Fund Structure
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Quick Answer
A provision requiring GPs to return previously received carry if the fund's final performance doesn't justify it.
A carried interest clawback requires the GP to return excess carry distributions if the fund's overall performance at termination doesn't warrant the amount of carry already distributed. This commonly occurs when early exits generate carry but later investments decline in value. Clawback provisions typically require GPs to personally guarantee the repayment, though enforcement can be challenging.
In Practice
A GP received $8M in carry from early exits. At fund termination, total fund performance only justifies $5M in carry. The clawback provision requires the GP to return $3M to LPs.
Why It Matters
Clawback provisions protect LPs from overpaying carry on interim results. However, practical enforcement is difficult — GPs may have already spent or invested the carry, making collection uncertain.
VC Beast Take
Clawback provisions are where LP-GP relationships get tested. While they seem straightforward on paper, enforcement is messy—especially when GPs have left the firm or lack liquid assets to repay. The threat of clawback often keeps GPs conservative about early carry distributions, which can create tension when funds have big early wins. Most experienced LPs prefer deal-by-deal carry specifically to avoid clawback complications.
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A carried interest clawback requires the GP to return excess carry distributions if the fund's overall performance at termination doesn't warrant the amount of carry already distributed. This commonly occurs when early exits generate carry but later investments decline in value.
Understanding Carried Interest Clawback is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
Carried Interest Clawback falls under the fund-structure category in venture capital. This area covers concepts related to how venture capital funds are organized, managed, and governed.
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