What is Clawback Provision?
Clawback Provision
A Clawback Provision is a legal clause in a venture capital fund agreement requiring the fund managers (GPs) to return excess carried interest if subsequent investments underperform.
Why It Matters for Startups
Directly dictates the cap table and dilution structure during fundraising; understanding Clawback Provision helps founders model equity distributions when structuring rounds for lp protection against gp overpayment.
Detailed Deep Dive
A Clawback Provision is a legal clause in a venture capital fund agreement requiring the fund managers (GPs) to return excess carried interest if subsequent investments underperform.
Frequently Asked Questions
Q:Why is clawback necessary?
If early exits generate massive profits and GPs collect carry, but later investments lose money, the GP may end up with more than their 20% carry share of total fund profits.
Q:When is a clawback executed?
Typically at the final liquidation of the fund (around Year 10 or 12).
Quick Facts
- CategoryFunding
- Key ApplicationLP protection against GP overpayment
Coverage Trend12 Weeks
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