claw-back

Definition

A provision allowing limited partners to reclaim previously distributed carried interest from GPs if later losses reduce overall fund returns. The nightmare scenario keeping fund managers up at night.

Example Usage

We distributed carry after our first two unicorn exits, but now there's a claw-back risk if the rest of the portfolio craters.

Origin

Private equity and hedge fund terminology, became common in VC after 2008 financial crisis

Fun Fact

Claw-backs are rarely enforced in practice because the legal fees often exceed the recoverable amount, making them more deterrent than reality.

Source: Venture capital fund governance standards

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