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Waterfall Distribution Calculator

See exactly how exit proceeds flow through an investor waterfall.

How it is calculated

Proceeds are paid out in three tiers, each filled before the next. Tier 1: return_of_capital = min(proceeds, capital). Tier 2: preferred = min(remaining, capital × pref% ÷ 100). Tier 3: the leftover is split, carry = leftover × carry% ÷ 100 to the general partner and the rest to the limited partners. The limited partner total is capital returned plus preferred plus their share of the leftover. The preferred percentage is applied once to the invested capital, so enter the total hurdle for the whole holding period (for example 8% a year over 3 years is about 24, or 25.97 compounded), not an annual rate. There is no GP catch-up tier. A carry above 100% or any negative input returns no result.

Worked example

A fund invested $1,000,000 and the exit brings $2,000,000, with a 20% preferred return hurdle and 20% carry. Tier 1: capital back is $1,000,000.00. Tier 2: preferred is 1,000,000 × 20% = $200,000.00. The leftover is 2,000,000 − 1,000,000 − 200,000 = $800,000. Tier 3: GP carry is 800,000 × 20% = $160,000.00 and the LPs keep $640,000. LP total: 1,000,000 + 200,000 + 640,000 = $1,840,000.00.

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Common mistakes

  • Entering an annual hurdle rate such as 8 for a multi-year hold. The tool applies the rate once, so for 3 years you must enter the total hurdle for the period, not the yearly figure.
  • Expecting a GP catch-up. This version has none: the carry is taken only from what is left after capital and preferred return, not from total profit.
  • Entering profit instead of exit proceeds. The proceeds field is the total cash coming back, including the original capital.
  • Treating the carry percentage as the GP's share of all proceeds. It applies only to the amount remaining after tiers 1 and 2.
  • Expecting a result when proceeds are below capital. It still works, but all proceeds go back to the LPs as return of capital and the GP gets $0.00.

About this calculator

A distribution waterfall is the tiered order in which proceeds from a private-equity fund, real-estate syndication, or startup exit get paid out to different parties, structured so each ‘bucket’ must be fully satisfied before money flows to the next tier. A typical waterfall runs: (1) return of capital — limited partners (LPs) get their original invested capital back first; (2) the preferred return (hurdle rate) — LPs receive a minimum return, commonly 6-8% a year, before the general partner (GP) earns anything; and (3) carried interest — the GP's share (often 20%) of remaining profits, split with LPs at an agreed ratio. Many real-world waterfalls insert a GP catch-up tier between the hurdle and the carry; this calculator models the three-tier version without one.

Private-equity fund managers, real-estate syndicators, and startup founders/investors negotiating exit terms use waterfall modeling to structure and communicate exactly how proceeds from a sale or fund liquidation will be split, since the order and thresholds materially change what each investor class actually receives — a deal can look attractive on headline terms but distribute very differently once the hurdle and carry tiers are modeled out.

The preferred rate is applied once to invested capital, so with no holding-period input the return accrued over the whole hold is what counts.

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