Clawback security
Last updated
Quick Answer
Clawback security is the mechanism ensuring money is available to satisfy the obligation when it is called.1,2
What it is
Security takes several forms — escrowed carry, personal guarantees from individual recipients, or a parent undertaking from the management company. Each addresses the same failure: a clawback owed by an entity that has already distributed everything it held. The strength of a clawback is a function of its security rather than of its drafting.1,2
Operational context
What good looks like
Why It Matters
A clawback is worth only the assets standing behind it, so the security provisions decide whether the obligation is a recoverable claim or a promise from an entity that has already paid everything out.1
Term Family
Frequently Asked Questions
What is Clawback security in venture capital?
Security takes several forms — escrowed carry, personal guarantees from individual recipients, or a parent undertaking from the management company. Each addresses the same failure: a clawback owed by an entity that has already distributed everything it held.
Why is Clawback security important for startups?
Understanding Clawback security is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
Sources & References
- 1.duanemorris-clawbacks — Private Equity Funds: Clawbacks and Investor GivebacksPrivate Equity Funds: Clawbacks and Investor GivebacksDuane Morris LLP(Clawback security is the mechanism ensuring money is available to satisfy the obligation when it is called.)secondary · T2 · vesting-clawback · structure
- 2.ilpa-principles-3 — ILPA Private Equity Principles 3.0 (2019)ILPA Private Equity Principles 3.0 (2019)ILPA(Clawback security is the mechanism ensuring money is available to satisfy the obligation when it is called.)primary · T1 · vesting-clawback · structure
Newsletter
CarryBeast Brief
Carry math, waterfall tiers, and incentive design. Every Tuesday.
CarryBeast Brief
The weekly brief on carry and fund economics
Weekly analysis of waterfall structures, promote splits, and incentive design across private funds. Every Tuesday, free.
Archstone
Run your fund like an institution.