What is GP catch-up?
The GP catch-up is the third step in a standard carry waterfall: after LPs receive their paid-in capital and the preferred return, the GP “catches up” by receiving 100% of further profits until the cumulative profit split reaches 80% LP / 20% GP. Only after the catch-up is complete does the standard 80/20 split apply to remaining profits.
How catch-up math works
If a fund delivers 8% preferred return to LPs on USD 100M paid-in (USD 8M), and then catches up the GP, the GP receives 100% of profits until LP has 80% and GP has 20% of cumulative profits above preferred. With full catch-up: GP gets USD 2M for every USD 8M LP previously received above paid-in. After that point, 80/20 splits resume on additional gains.
Full vs. partial catch-up
The most common structure is “full catch-up” — 100% of profits to GP during the catch-up period. LP-friendly side letters may negotiate “partial catch-up” (50% or 80% to GP), which slows GP catch-up and pushes more economics back to LPs. “No catch-up” means GP only ever receives 20% of profits above preferred — meaningfully less over a fund’s life.
Catch-up across waterfall types
In a European waterfall (whole-fund), catch-up happens only once the entire fund has delivered preferred return — LP-friendly. In an American waterfall (deal-by-deal), catch-up applies on each profitable exit individually — GP-friendly because the GP receives carry on early winners without waiting for the full fund to clear.
Why founders should care
A GP whose fund is still in catch-up territory is incentivised to push for any exit that demonstrates progress — catch-up cash flow can dramatically improve GP economics. Knowing whether your investor’s fund has cleared catch-up clarifies why some GPs push exits aggressively while others can be patient.
Related: Hurdle Rate, Preferred Return, Carry, Fund Returns.