---
title: "What Is Clawback?"
term: "Clawback"
description: "A clawback is a contractual provision that lets LPs recover previously paid carry or fees from the GP when early distributions exceed what the fund ultimately earns."
date: 2026-07-25T00:00:00.000Z
updated: 2026-07-25T00:00:00.000Z
topics: ["fund-economics"]
source: https://venturecapitaltracker.com/glossary/clawback
---

# What Is Clawback?

> A clawback is a contractual provision that lets LPs recover previously paid carry or fees from the GP when early distributions exceed what the fund ultimately earns.

**Clawback** is the mechanism that true-ups carried interest (carry) paid to the GP when later fund results show those distributions were too high relative to the final waterfall.

## How it works

Venture and buyout funds typically distribute profits to LPs and GPs as portfolio companies exit. Carry—often around 20% of profits above a preferred return—flows to the GP on each distribution. If early exits are strong and later ones weak, the GP may have received more than its final share of total fund profit. A clawback obligation requires repayment of the excess, usually from the GP entity or individual partners. Partnership agreements specify timing (often at fund end or upon final liquidation), calculation method (deal-by-deal vs whole-fund), and whether tax distributions already taken are grossed up. Many funds escrow a portion of carry or use partner guarantees to ensure LPs can actually collect. Clawbacks are separate from **clawback** policies in public companies (executive pay recovery); here the term is fund-economics specific.

## Why it matters

- **LPs:** Clawbacks align GP pay with lifetime fund performance, not just the first few exits. Weak clawback language or under-secured GPs reduce that protection.
- **GPs:** Partners may face personal liability years after spending carry. Fund structuring, escrow, and deal-by-deal versus whole-fund carry models change clawback risk materially.
- **Fund counsel:** Drafting must cover tax distributions, GP catch-up, and interim closes so the waterfall math is auditable at termination.

## Common mistake

Assuming deal-by-deal carry eliminates clawback risk entirely. Even deal-by-deal structures can include fund-level true-ups or escrow requirements when early deals pay carry that later deals cannot support.

## Related ideas

Carried interest, waterfall, preferred return, GP catch-up, and escrow of carry sit in the same fund economics stack as clawback provisions.

## FAQ

### What is a clawback in simple terms?

If a fund pays the GP carry on early winners but later deals lose money, a clawback requires the GP to give back excess carry so the split matches the final fund return.

### Why does clawback matter?

For LPs, it protects against overpaying carry on a front-loaded success profile. For GPs, it affects how and when individual partners can spend carry—and often requires escrow or personal guarantees.


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Source: https://venturecapitaltracker.com/glossary/clawback