Escrow release triggers
Last updated
Quick Answer
Escrow release triggers are the conditions under which withheld carry is paid out to the general partner.1,2
What it is
Release is typically tied to a coverage test showing the remaining portfolio is comfortably sufficient to meet limited partners' entitlements, or to the passing of a defined date or milestone. Loose triggers hollow out the escrow, since money released early is no longer available when the clawback is finally computed.1,2
Operational context
What good looks like
Why It Matters
The triggers decide whether an escrow is real security or a formality: money released early on a loose test is no longer available when the clawback is finally computed.1
Term Family
Frequently Asked Questions
What is Escrow release triggers in venture capital?
Release is typically tied to a coverage test showing the remaining portfolio is comfortably sufficient to meet limited partners' entitlements, or to the passing of a defined date or milestone.
Why is Escrow release triggers important for startups?
Understanding Escrow release triggers 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(Escrow release triggers are the conditions under which withheld carry is paid out to the general partner.)secondary · T2 · vesting-clawback · structure
- 2.ilpa-model-lpa-wof-ts — ILPA Model LPA Term Sheet — Whole-of-Fund Waterfall Version (July 2020)ILPA Model LPA Term Sheet — Whole-of-Fund Waterfall Version (July 2020)ILPA(Escrow release triggers are the conditions under which withheld carry is paid out to the general partner.)primary · T1 · vesting-clawback · structure
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