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Hurdle Rates for PE/VC Funds: An Overview
A hurdle rate is a provision that requires that the partners recover their capital contributions and, often, a specified rate of return, before the general partner starts receiving its allocation and distribution of profits in respect of its carried interest. The justification for the hurdle provision is that the general partner should not earn its carried interest until the partners who provided the capital to the partnership are repaid their investment and earn a return on their investment. This article addresses commonly negotiated issues in drafting hurdle provisions, the incentives created for the general partner, and basic tax aspects of hurdle provisions.
Example Hurdle Provision
A typical hurdle rate provision is set out below ' the example requires that the partners receive their capital contributions plus an 8% return thereon before any profits are distributed to the general partner in respect of its carried interest. In some partnerships, only the limited partners make capital contributions and therefore receive distributions prior to the general partner meeting the hurdle. If the general partner makes a capital contribution, which is usually no more than 1% of all capital contributions, then the general partner may (or may not) participate in distributions prior to meeting the hurdle to the extent of such contribution. In our example, the general partner receives distributions to the extent it made capital contributions. In the example provision, once the hurdle is met, profits are thereafter allocated to the general partner on its carried interest until the overall allocation of profits, after repayment of the partners' capital contributions and return thereon, is 80% to the partners in proportion to their capital contributions and 20% to the general partner in respect of its carried interest; thereafter, profits are divided in the same 80/20 proportion between the partners contributing capital to the partnership and the general partner, respectively.
Yachts, Jets, Horses & Hooch: Specialized Commercial Leasing Models
Defining commercial real estate asset class is essentially a property explaining how it identifies — not necessarily what its original intention was or what others think it ought to be. This article discusses, from a general issue-spot and contextual analysis perspective, how lawyers ought to think about specialized leasing formats and the regulatory backdrops that may inform what the documentation needs to contain for compliance purposes.
Hyperlinked Documents: The Latest e-Discovery Challenge
As courts and discovery experts debate whether hyperlinked content should be treated the same as traditional attachments, legal practitioners are grappling with the technical and legal complexities of collecting, analyzing and reviewing these documents in real-world cases.
Identifying Your Practice's Differentiator
How to Convey Your Merits In a Way That Earns Trust, Clients and Distinctions Just as no two individuals have the exact same face, no two lawyers practice in their respective fields or serve clients in the exact same way. Think of this as a "Unique Value Proposition." Internal consideration about what you uniquely bring to your clients, colleagues, firm and industry can provide untold benefits for your law practice.
Risks and Ad Fraud Protection In Digital Advertising
The ever-evolving digital marketing landscape, coupled with the industry-wide adoption of programmatic advertising, poses a significant threat to the effectiveness and integrity of digital advertising campaigns. This article explores various risks to digital advertising from pixel stuffing and ad stacking to domain spoofing and bots. It will also explore what should be done to ensure ad fraud protection and improve effectiveness.
Turning Business Development Plans Into Reality
This article offers practical insights and best practices to navigate the path from roadmap to rainmaking, ensuring your business development efforts are not just sporadic bursts of activity, but an integrated part of your daily success.