What is the hurdle rate?
The hurdle rate (or “preferred return”) is the minimum annualised return — typically 8% IRR — a venture fund must deliver to LPs before the GP can start collecting carried interest. It is the threshold inside the carry waterfall: until LPs cross it, all profits flow to LPs; after it, the GP catches up and then participates in 20% of further profits.
How 8% became standard
The 8% IRR hurdle dates from US private equity in the 1980s, anchored to long-term Treasury yields plus an equity risk premium. Venture funds adopted it via the original NVCA model documents and Sequoia / Kleiner Perkins-era partnership agreements. Some early-stage funds today use lower or no hurdles, arguing power-law return profiles make hurdles meaningless in practice; institutional LPs typically resist.
The hurdle in the waterfall
Standard “European” carry waterfall: (1) Return of capital — LPs receive their full paid-in capital. (2) Hurdle — LPs receive 8% IRR on contributed capital. (3) GP catch-up — until the LP/GP split on profits-above-hurdle reaches 80/20. (4) Carry — all subsequent profits split 80% LP / 20% GP. The “American” deal-by-deal waterfall applies similar logic to each profitable exit individually.
Hurdle math in Türkiye
CMB-licensed Turkish girişim sermayesi yatırım fonu (GSYF) GP-LP agreements typically import the 8% hurdle from international ILPA templates, sometimes denominated in USD or EUR to insulate LPs from TRY depreciation. The fund vehicle’s corporate tax exemption (KVK 5/1-(d)) applies regardless of hurdle structure, but GP-side carry taxation depends on whether the GP entity is structured domestically or offshore.
Why founders should care
A fund still below hurdle has GPs working “for free” on the carry side — strong incentive to push winning portfolio companies to exits or markups. A fund well above hurdle has GPs already earning carry — incentive to optimise for compound growth in remaining winners rather than rush exits.
Related: Preferred Return, Carry, Fund Returns, IRR, GP Catch-Up.