Fund Structure
Key Person Carry Forfeiture
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Quick Answer
The loss of unvested or sometimes vested carried interest when a designated key person departs the fund before the end of the vesting period or fund life.
What it is
Key Person Carry Forfeiture is the mechanism by which a departing key person at a VC fund loses some or all of their carried interest allocation. The terms are governed by the internal GP agreement and sometimes the LPA. Typically, unvested carry is automatically forfeited upon departure, while treatment of vested carry varies. In some agreements, vested carry is retained regardless of departure (the 'walk-away' provision). In others, even vested carry can be partially or fully forfeited if the person leaves for a competitor, is terminated for cause, or departs before a specified date. Some funds distinguish between 'good leaver' and 'bad leaver' scenarios, with good leavers (retirement, disability, death) retaining more carry than bad leavers (voluntary resignation, termination for cause). Forfeited carry is typically redistributed to remaining partners.
In Practice
A partner at a VC firm is allocated 10% of the carry pool with 4-year vesting. After 2 years, she leaves to join a competing fund, making her a 'bad leaver' under the GP agreement. She forfeits all carry—both vested and unvested. Had she left for a non-competing role (a 'good leaver'), she would have retained her 50% vested carry and forfeited only the unvested portion.
Operational context
What good looks like
The term is tied to a real workflow, not just a definition.
Ownership, timing, and evidence are clear.
The reader can tell what decision the concept supports.
Related terms point to the next useful explanation.
Why It Matters
Carry forfeiture terms are among the most consequential and least discussed aspects of joining a VC firm. Investment professionals should negotiate these terms carefully before joining, understanding exactly what happens to their carry in various departure scenarios. The difference between good leaver and bad leaver treatment can be worth millions.
VC Beast Take
The rise of solo GP funds and smaller partnerships has made carry forfeiture clauses more nuanced. We're seeing creative structures where departing partners retain some carry on companies they sourced or led, while forfeiting carry on future deals. This evolution reflects the reality that talent mobility in VC has increased dramatically, and purely punitive clauses can create perverse incentives that hurt portfolio companies.
Related tools and reading
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.
How VC Fund Economics Work: 2 and 20 Explained in Depth
The '2 and 20' model powers every venture fund, but most people misunderstand how GPs actually make money. Here's the real math behind management fees, carry, and fund economics.
Frequently Asked Questions
What is Key Person Carry Forfeiture in venture capital?
Key Person Carry Forfeiture is the mechanism by which a departing key person at a VC fund loses some or all of their carried interest allocation. The terms are governed by the internal GP agreement and sometimes the LPA.
Why is Key Person Carry Forfeiture important for startups?
Understanding Key Person Carry Forfeiture is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
What category does Key Person Carry Forfeiture fall under in VC?
Key Person Carry Forfeiture 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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