Tentt

Waterfall Distribution Calculator

Model PE fund waterfalls: return of capital, preferred return, GP catch-up, and carried interest. Supports European and American structures.

Catch-up structure

LP receives

$110,000,000

2.20x

GP carry

$15,000,000

20.0% of profits

Preferred return

$23,466,404

8% × 5 yrs

Tier-by-tier distribution

TierLPGP
Return of capital$50,000,000$0
Preferred return (8% compounded)$23,466,404$0
GP catch-up$0$5,866,601
Carried interest split (80/20)$36,533,596$9,133,399
Total$110,000,000$15,000,000
100% private

Your numbers never leave your browser. Tentt has no backend, no database, and no record of anything you type into this calculator — the math runs entirely on your device. Output is for illustrative modelling only and does not constitute investment, tax, legal, or accounting advice; verify any number you intend to act on.

What is a distribution waterfall?

The distribution waterfall is the single most consequential clause in any private equity, venture capital, or real estate fund document. It dictates the contractual sequence by which every dollar of exit proceeds is split between the LPs who put up the capital and the GP who deployed it. Misreading the waterfall by even one tier can shift millions of dollars between the two sides of the deal, which is why it is the first clause every fund lawyer reads, the first calculation every placement agent models, and the single mechanic that every PE associate is expected to be able to do on a whiteboard during a case interview.

Until now, the only free interactive web tools for modelling a waterfall have been a handful of basic versions on niche blogs and a single solid one buried in CalcBee.com's calculator library. The serious tools in the space — Qashqade, Cascata, Agora Real, Allvue — are six-figure-per-year enterprise SaaS platforms aimed at fund administrators, not the analyst who needs to model a quick scenario for tomorrow's IC meeting. This page is the comprehensive free version: a full four-tier waterfall, configurable preferred return, configurable carry, both 100% and 50/50 catch-up structures, and a clean tier-by-tier output ready for drop-in to a memo.

The four tiers

Every standard PE waterfall has the same four tiers, in the same order. Each must be fully satisfied before any dollars flow to the next.

Tier 1 — Return of Capital. The first dollars distributed go entirely to the LP until the LP has received back 100% of its contributed capital. No GP profit share applies in this tier. This is sometimes called the "pari-passu" tier in real estate.

Tier 2 — Preferred Return. After return of capital is complete, the next dollars distributed go entirely to the LP until the LP has received an annualised "preferred return" on its contributed capital. The market standard is 8% compounded annually. This tier is also known as the hurdle rate, and it is the LP's structural protection against a GP earning carry on returns that simply track the cost of capital.

Preferred return amount

Pref = Contributed Capital × ((1 + pref rate) ^ years − 1)

Tier 3 — GP Catch-up. Once the LP has received its capital plus its pref, the GP catch-up kicks in. In a "100% catch-up" structure, the GP receives 100% of the next distributions until its cumulative share of total profits-above-capital reaches the carry rate (typically 20%). The closed-form catch-up amount is C = (carry × pref) / (catch-up share − carry). With a 100% catch-up and 20% carry, this simplifies to C = pref / 4.

Tier 4 — Carried Interest Split. Everything beyond the catch-up tier is split per the carry rate — typically 80% LP / 20% GP. This is where the GP's "carry" comes from on a winning deal.

Worked example

Worked example

An LP commits $50M of capital. After a five-year hold, the deal exits for $125M of total proceeds. The waterfall has an 8% compounded preferred return, 20% carry, and a 100% catch-up.

Tier 1 (return of capital): LP gets $50M. Remaining: $75M.

Tier 2 (8% × 5yr compounded pref): LP gets $50M × ((1.08)^5 − 1) ≈ $23.4M. Remaining: ~$51.6M.

Tier 3 (GP catch-up): C = $23.4M / 4 ≈ $5.85M goes 100% to GP. Remaining: ~$45.7M.

Tier 4 (80/20 split on the rest): LP gets $36.6M; GP gets $9.1M.

Total LP receives: $50M + $23.4M + $36.6M = $110M (LP MOIC ≈ 2.20x). Total GP receives: $5.85M + $9.1M = ~$15M, which equals 20% of total profits-above-capital ($75M total profit × 20% = $15M). This confirms the catch-up math.

Reading the output

The most useful number on the page is the GP's share of total profits — shown on the GP card under "of profits". On a fully-cleared waterfall (Tier 4 reached) this should equal exactly the carry rate; if it is lower, the deal did not generate enough profit to fully clear the catch-up, and the GP earned less than its nominal 20% share. On a barely-cleared waterfall the gap can be significant — a deal that exits at 1.5x on a five-year hold often delivers the GP only 12% to 15% of profits despite a stated 20% carry rate, because the catch-up tier eats most of the cushion.

Use the waterfall calculator alongside the MOIC calculator to translate gross deal returns into net LP returns, the LBO calculator to model the deal-level economics that produce the total proceeds in the first place, and the fund fee calculator to layer management fee drag on top of the carry split.

Frequently asked questions

What is a distribution waterfall?
A distribution waterfall is the contractual sequence by which proceeds from a private equity, venture capital, or real estate investment are split between limited partners (LPs) and the general partner (GP). The waterfall has four standard tiers: return of capital, preferred return, GP catch-up, and a residual carried interest split. Each tier must be fully satisfied before any dollars flow to the next, which is why the structure is called a 'waterfall' — proceeds cascade down through the tiers as they fill up.
What is preferred return (the hurdle)?
Preferred return — also called the hurdle rate — is the minimum return the LP must receive before the GP earns any carried interest. The market standard is 8% per year, compounded annually, calculated on contributed capital. On a $50M LP commitment over a five-year hold at 8% compounded, the pref accrues to roughly $23.4M of priority distribution. The GP earns nothing until that $23.4M has been paid to the LP on top of the original $50M of capital.
What is GP catch-up?
After the preferred return is paid in full, the GP catch-up tier rapidly accelerates the GP's share of profits up to its full carry percentage. The most common structure is a '100% catch-up', where the GP receives 100% of the next dollars distributed until its cumulative share of total profits-above-capital reaches the carry rate (typically 20%). Some funds use a '50/50 catch-up' that splits this tier evenly between LP and GP — slower for the GP but more favourable to the LP. The calculator above lets you toggle between both structures.
What is the difference between European and American waterfalls?
A European waterfall is a fund-level waterfall: the GP earns no carried interest until the entire fund's contributed capital and preferred return have been returned to LPs across all investments combined. An American waterfall is a deal-level waterfall: the GP earns carry on each individual exit as it happens, with a clawback provision protecting the LP if later deals lose money. American is more GP-friendly and produces faster carry timing; European is more LP-friendly and dominant in Europe and increasingly in US institutional funds. The calculator above models a single deal-level waterfall, which is the right choice for analysing one portfolio company in isolation.
What is carried interest?
Carried interest — usually called 'carry' — is the GP's share of profits above the preferred return. The market standard is 20% (the GP keeps 20% of profits, the LP keeps 80%), which is the '20' in 'two and twenty'. Some funds use 25% or 30% carry on outperformance above a higher hurdle (a 'super-carry' tier). Carried interest is the single largest source of GP wealth — for top-decile funds it dwarfs management fee income — and it is taxed at long-term capital gains rates in the US, which has made it a recurring political flash-point for at least the past fifteen years.
How does this differ from real estate promote?
Real estate sponsors use the same four-tier waterfall structure but call carried interest the 'promote'. The conventional vocabulary differs slightly: real estate often uses the term 'pari-passu' for the return-of-capital tier, 'preferred return' for the hurdle, 'lookback IRR' for a particular type of clawback, and 'promote' for the GP profit share. The math is identical, so this calculator works for both PE and real estate waterfalls — just substitute 'sponsor' for 'GP' when you read the output.

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