hurdle rate

Definition

The minimum return a VC fund must achieve before partners can collect carried interest—usually 8% annually. The bar LPs set to ensure their capital at least beats a boring index fund before the GP gets rich.

Example Usage

The fund had a 8% hurdle rate, meaning limited partners got all profits until they'd earned that return, then the 20% carry split kicked in.

Origin

Investment management term dating to 1980s private equity as LPs sought to align interests

Fun Fact

Some funds have 'catch-up' provisions where once the hurdle is cleared, GPs get 100% of profits until they've caught up to their 20% overall—making the first dollars past the hurdle extremely lucrative.

Source: Private equity and venture capital fund documentation

Related Terms

Intermediate

party round

A funding round with so many small investors that the cap table looks like a nightclub guest list—lots of names, minimal commitment from anyone. Usually signals either a hot deal everyone wants a piece of, or a desperate founder who couldn't land a lead investor.

🚀 Startup / VC

Intermediate

runway extension

Actions taken to make existing capital last longer, typically through cost-cutting, down-rounds, or revenue generation—whatever keeps you alive until the next funding round. Financial life support for startups.

🚀 Startup / VC

Intermediate

deployment velocity

The speed at which a venture fund invests its committed capital, often scrutinized as a metric of both deal flow quality and fund discipline. Too slow suggests weak deal flow; too fast suggests poor judgment and FOMO.

🚀 Startup / VC

Intermediate

revenue multiple

A valuation metric calculated by dividing company valuation by annual revenue, popular in tech because it works even when profits are mythical. Allows investors to justify astronomical valuations by citing "industry standards."

🚀 Startup / VC

Advanced

cram down

A financing round where new investors impose unfavorable terms on existing shareholders who lack the power to block it. Essentially a hostile takeover by people already inside your building.

🚀 Startup / VC

Intermediate

pro rata rights

The sacred privilege granted to investors allowing them to maintain their ownership percentage in future funding rounds by ponying up more cash. It's like a VIP pass that lets you keep throwing money at a company before it becomes wildly successful or spectacularly flames out.

🚀 Startup / VC

Translate This Term

See “hurdle rate” in Corporate Speak, Gen-Z Slang, Pirate Speak, and more.

Try the Translator

Share This Term

Post on X Share on Facebook Share on LinkedIn

Discover a Term

Intermediate

center of excellence

A specialized team or department that provides leadership, best practices, and support for a specific focus area. Often ...