GP catch-up is the waterfall phase where the general partner receives an outsized share of distributions—temporarily—until cumulative carry matches the agreed percentage of total fund profits.

How it works

Typical waterfalls return LP contributed capital first, then pay a preferred return hurdle if one exists. Next, catch-up allocates most or all remaining profits to the GP until the GP has received its target carry—commonly 20% of cumulative fund profit. After catch-up completes, remaining distributions split 80/20 (or another agreed ratio) between LPs and GP. Catch-up percentages vary: a 100% catch-up to GP is standard in many VC funds until the 20% carry is satisfied; partial catch-ups slow GP participation. The mechanics live in the LPA and affect timing of GP wealth more than headline carry rate alone.

Why it matters

• Founders: Indirect effect—GPs with accelerating carry on strong vintages may be motivated to push exits, though fund duty still requires fair process.
• Investors (LPs): Model catch-up when comparing fund structures; paired with clawback provisions it defines GP/LP alignment on early big wins.

Common mistake

Assuming 20% carry means the GP takes 20% of every exit immediately. Waterfall order and catch-up delay GP carry until LP capital and hurdles are returned.

Related ideas

Carried interest, preferred return hurdle, distribution waterfall, clawback, and LP/GP split.