catch-up provision

Definition

A term in VC fund agreements where once LPs get their initial investment back, GPs get an accelerated share of profits until their normal split is reached. Basically letting the manager 'catch up' to their 20% after paying back investors.

Example Usage

Our fund has a 100% catch-up provision, so after returning capital, I get all profits until hitting my 20% carry.

Origin

Private equity and venture capital fund structure terminology, standard since 1980s

Fun Fact

Some funds negotiate 'no catch-up' terms, meaning GPs never fully catch up to their carried interest percentage on early distributions.

Source: VC fund formation and limited partnership agreements

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