NAV coverage test
Last updated
Quick Answer
A NAV coverage test releases escrowed carry only while the fund's remaining net asset value exceeds a defined multiple of limited partners' outstanding entitlement.1
What it is
The test asks whether the portfolio still held is large enough that a clawback is improbable. While it is satisfied, escrow may be released; when it is not, the escrow stays funded. It ties the release decision to the fund's actual position rather than to the calendar.1
Operational context
What good looks like
Why It Matters
It ties the release decision to the fund's actual position rather than to the calendar, so the escrow stays funded exactly when the portfolio is weak enough for a clawback to matter.1
Term Family
Related concepts
Frequently Asked Questions
What is NAV coverage test in venture capital?
The test asks whether the portfolio still held is large enough that a clawback is improbable. While it is satisfied, escrow may be released; when it is not, the escrow stays funded. It ties the release decision to the fund's actual position rather than to the calendar.
Why is NAV coverage test important for startups?
Understanding NAV coverage test is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
Sources & References
- 1.ilpa-principles-3 — ILPA Private Equity Principles 3.0 (2019)ILPA Private Equity Principles 3.0 (2019)ILPA(A NAV coverage test releases escrowed carry only while the fund's remaining net asset value exceeds a defined multiple of limited partners' outstanding entitlement.)primary · T1 · vesting-clawback · term
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