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GP catch-up tier

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Quick Answer

The catch-up tier pays the general partner a disproportionate share of distributions until it has received its agreed percentage of cumulative profit.1,2

What it is

Once limited partners have received their capital and preferred return, the catch-up reverses the priority: distributions flow to the general partner, at a rate defined in the agreement, until the overall split matches the agreed carry percentage. It exists to reconcile the preferred return with the intended profit share rather than to add to it.1,2

Operational context

What good looks like

Why It Matters

The catch-up is the most misunderstood tier in the structure, and its rate determines how quickly the intended split is restored.1

Term Family

Related concepts

GP catch-up

Related Questions

What is the distribution waterfall mechanism?

A distribution waterfall is the ordered sequence of tiers that determines how a fund's proceeds are split between limited partners and the general partner.

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Frequently Asked Questions

What is GP catch-up tier in venture capital?

Once limited partners have received their capital and preferred return, the catch-up reverses the priority: distributions flow to the general partner, at a rate defined in the agreement, until the overall split matches the agreed carry percentage.

Why is GP catch-up tier important for startups?

Understanding GP catch-up tier is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.

Sources & References

  1. 1.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(The catch-up tier pays the general partner a disproportionate share of distributions until it has received its agreed percentage of cumulative profit.)primary · T1 · waterfall-models · structure
  2. 2.duanemorris-clawbacks — Private Equity Funds: Clawbacks and Investor GivebacksPrivate Equity Funds: Clawbacks and Investor GivebacksDuane Morris LLP(The catch-up tier pays the general partner a disproportionate share of distributions until it has received its agreed percentage of cumulative profit.)secondary · T2 · waterfall-models · structure

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