# What is Clawback Provision? Definition & Technical Mechanics

> **Source:** [SPIDITS AI Startup & Venture Intelligence Glossary](https://spidits.com/startup-glossary)  
> **Category:** Funding  
> **Canonical Citation:** [https://spidits.com/startup-glossary/clawback-provision](https://spidits.com/startup-glossary/clawback-provision)

## Definition
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.

## Architectural Mechanics & 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.

## Industry Applications & Real-World Use Cases
LP protection against GP overpayment

## Frequently Asked Questions

### 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.

### When is a clawback executed?
Typically at the final liquidation of the fund (around Year 10 or 12).

## Related Terminology
- [carried-interest](https://spidits.com/startup-glossary/carried-interest)
- [gp](https://spidits.com/startup-glossary/gp)
- [hurdle-rate](https://spidits.com/startup-glossary/hurdle-rate)

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*From the SPIDITS AI Knowledge Base (300+ terms indexed). Explore full technical definitions: [https://spidits.com/startup-glossary](https://spidits.com/startup-glossary)*