Fund Structure
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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.
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.
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.
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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.
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.
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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