Hurdle rates or preferred return agreements require that a certain return threshold is met before GPs receive carry. In the European waterfall model, all Limited Partners’ capital contributions must be repaid before GPs receive carried interest, which can delay GP payouts. In contrast, the American waterfall allows GPs to receive carry on a deal-by-deal basis, potentially allowing earlier payouts. Hurdle rates are uncommon in VC, especially for smaller funds, as they can misalign incentives and reduce GP carry.