VC & PE Glossary
What Is Recycle Provisions?
Updated
Definition
Recycle provisions in a fund LPA allow the GP to redeploy distributions from early exits back into new or follow-on investments instead of paying them out to LPs — within caps and consent rules defined at fundraising.
Useful for: Founders, Investors
Recycle provisions are LPA clauses governing whether and how a GP may reinvest returned capital — from exits, dividends, or interest — into fund investments rather than distributing it to LPs.
How it works
Without recycling, early distributions reduce investable capital permanently. Recycle provisions let GPs treat some proceeds as still part of the investment program until a /glossary/recycling-cap is hit — often 100–120% of commitments depending on negotiation. Some funds require LPAC consent above thresholds. Provisions interact with /glossary/recallable-distributions: recall brings cash back; recycling keeps it inside the fund economics.
Side letters may grant favored LPs different recycle rights or opt-outs.
Why it matters
- GPs: Recycling supports winners in year four without fundraising Fund II early.
- LPs: More recycling delays DPI but can improve total returns if redeployment is disciplined.
- Founders: Follow-on availability from a fund mid-vintage often hinges on recycle headroom.
Common mistake
Confusing recycle provisions with voluntary GP recycling of personal carry. LPA recycle rules bind the whole partnership.
Related ideas
/glossary/recycling, /glossary/recycling-cap, LPAC, and distribution policy.
Related terms
- Recycling — In fund economics, recycling is when a GP reinvests proceeds from early exits or other distributions into portfolio companies rather than paying that cash out to LPs — effectively increasing invested capital without raising a new fund.
- Recycling Cap — A recycling cap is the maximum amount of distributed capital a GP may reinvest under the LPA — often expressed as a percentage of total commitments — after which exit proceeds must flow to LPs as distributions.
Common questions
Short answers for founders, LPs, and operators