Lookback Provision

The structured sequence in which investment returns are distributed among fund stakeholders, typically flowing from return of capital to limited partners, then preferred return, then a catch-up allocation to the general partner, and finally a profit split based on carried interest terms. The waterfall structure is central to fund economics and LP/GP alignment.

The share of investment profits that a fund manager (general partner) receives as performance-based compensation, typically 20% of profits above a hurdle rate. Carry is the primary financial incentive for venture capital and private equity fund managers.

The minimum rate of return that a fund must achieve before the general partner becomes entitled to carried interest, or the minimum acceptable return for an investment decision. Hurdle rates are typically set between 6% and 8% in PE/VC fund structures and serve as a performance benchmark that aligns manager and investor incentives.

A direct investment made by a limited partner alongside a private equity or venture capital fund in a specific portfolio company. Co-investments allow LPs to increase exposure to particular deals, typically at reduced or no management fees and carry, while giving the GP additional capital for larger transactions.

A private equity and venture capital performance metric combining both realised returns (distributions) and unrealised value (remaining portfolio value) relative to total capital contributed. TVPI equals DPI plus RVPI and provides the most complete picture of a fund's overall performance.

A private equity and venture capital performance metric measuring the ratio of cumulative cash distributions returned to investors relative to the capital they have contributed. A DPI of 1.0x means investors have received back their original investment.

A provision in a loan agreement that triggers a default under the agreement if the borrower defaults on any other debt obligation, even if the borrower is current on the loan containing the cross-default clause. Cross-default clauses protect lenders by ensuring they are immediately informed and can take action when a borrower's creditworthiness deteriorates, preventing other creditors from gaining preferential treatment.

A Latin term meaning 'on equal footing,' used in finance to indicate that two or more parties, instruments, or claims have equal rights to payment or assets. In venture capital, pari passu clauses ensure that investors in the same class receive proportional treatment during distributions or liquidation events.

What are liquidation preferences and how do they affect founders?

Liquidation preferences give investors priority over common shareholders in an exit, ensuring they recover their investment first — participating preferences can significantly reduce founder payouts in moderate exit scenarios.