Fund Structure
Clawback
Last updated
Quick Answer
A provision requiring GPs to return previously distributed carry to LPs if the fund ultimately underperforms — protecting LPs from overpaying carry on early exits.
A clawback provision protects LPs from a scenario where a GP collects carry on early exits, but the fund ultimately underperforms on a whole-portfolio basis. Example: a fund earns large carry on an early exit, distributes it to GPs, but later portfolio companies fail and the overall fund returns less than 1x. Without clawback, LPs would have overpaid carry. With clawback, GPs must return the excess carry. Clawbacks are standard in fund agreements but difficult to enforce — GPs may have spent the carry or distributed it to partners who are no longer with the firm. Most funds require GPs to escrow a portion of carry (typically 25%) to cover potential clawbacks. The clawback obligation typically survives for several years after the fund closes.
Related Concepts
Further Reading
How to Write an LPA: The Limited Partnership Agreement Guide for Fund Managers
A practical 2026 guide for venture capital and private equity fund managers on drafting, negotiating, and operating under a Limited Partnership Agreement (LPA): key sections, ILPA standards, costs, lawyer selection, and common mistakes.
Venture Capital Salary & Compensation Guide 2026: Every Level Explained
A detailed breakdown of 2026 venture capital compensation across every role—from analyst to managing partner—including salary bands, bonus structures, carry mechanics, fund size effects, geography adjustments, and negotiation tactics.
How Venture Capital Firms Actually Make Money
Management fees fund operations, carried interest creates wealth. The detailed math of a $200M fund, fee structures, and why fund size is the most important business decision a VC makes.
Distributions in Venture Capital: Waterfall, Timing, and Tax Implications
Learn how venture capital distribution waterfalls work, when LPs receive proceeds, and the key tax implications every fund manager and LP needs to understand.
Clawback Provisions in VC: How They Work and Why They Matter
Clawback provisions ensure GPs return excess carry if a fund underperforms over its full life. Here's how they work and what both GPs and LPs need to know.
Carried Interest Explained: How VCs Actually Make Money
Carried interest is the mechanism that makes venture capital work — and understanding it is essential whether you're raising from VCs or thinking about joining a fund. Here's the complete breakdown.
Comparisons
Careers That Use This Term
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Frequently Asked Questions
What is Clawback in venture capital?
A clawback provision protects LPs from a scenario where a GP collects carry on early exits, but the fund ultimately underperforms on a whole-portfolio basis.
Why is Clawback important for startups?
Understanding Clawback is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
What category does Clawback fall under in VC?
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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