What is Hurdle Rate?
Hurdle Rate
A Hurdle Rate is the minimum rate of return a venture capital fund must achieve for its investors before the fund managers (GPs) can begin collecting carried interest.
Why It Matters for Startups
Directly dictates the cap table and dilution structure during fundraising; understanding Hurdle Rate helps founders model equity distributions when structuring rounds for vc performance fee regulation.
Detailed Deep Dive
A Hurdle Rate is the minimum rate of return a venture capital fund must achieve for its investors before the fund managers (GPs) can begin collecting carried interest.
Frequently Asked Questions
Q:What is a standard hurdle rate in venture capital?
Typically between 6% and 8% annualized.
Q:What happens if a fund does not meet the hurdle rate?
The GPs receive zero carried interest, and all profits are distributed solely to the LPs.
Quick Facts
- CategoryFunding
- Key ApplicationVC performance fee regulation
Coverage Trend12 Weeks
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