Fund Structure
Hurdle Rate
The minimum return LPs must receive before the GP starts collecting carried interest — typically 7-8% annually.
A hurdle rate (also called a preferred return or 'pref') is the minimum annual return that LPs receive on their capital before the GP begins taking carried interest. Standard hurdle rates in VC are 7-8% per year. Not all VC funds have hurdle rates — many early-stage funds don't, making it purely a 'return of capital then split profits' structure. Hurdle rates are more common in growth equity and private equity, where cash flows are more predictable. When a fund does have a hurdle rate, there's typically a 'catch-up' provision: once the hurdle is met, the GP receives 100% of profits until they've 'caught up' to their 20% share, then reverts to the standard 80/20 split.