How the Waterfall Is Calculated
The calculator runs one year at a time. Investors (the LPs and any GP co-invest) contribute at the start of Year 1, and each year’s cash is distributed at year-end through these tiers, in order.
- Preferred return. Each year the preference accrues on unreturned capital. A compounding pref accrues on unreturned capital plus any unpaid preference, which makes it an IRR hurdle at the pref rate. A simple pref accrues on capital only, and any unpaid amount carries forward without growing. Cash pays unpaid preference first, 100% to investors.
- Return of capital. With Return Capital in Tier 1 on, the next cash returns contributed capital to investors until all of it is back. Turn it off to model deals that split operating cash after the pref and return capital through the splits.
- GP catch-up. If included, the GP receives its catch-up share (c) of the next cash until it holds its target share (T) of all profit so far. The amount needed is (T × (investor profit + GP promote) − GP promote) ÷ (c − T). Profit means distributions other than returned capital.
- Promote tiers. Each tier keeps a balance that starts at the investors’ contributions, grows by the tier’s hurdle rate every year, and falls by every dollar investors receive from any tier, never below zero. The tier splits cash at its LP share until investors’ part covers that balance, which is the point where their IRR reaches the hurdle.
- Final split. Everything left is split at the final LP share. The rest is GP promote.
LP IRR uses the LP contribution at Year 0 and the LP distributions at each year-end. The equity multiple is total distributions divided by contributions. GP co-invest is paid pro rata with the LPs, and the promote is reported separately.
A Worked Example
LPs invest $9,000,000 and the GP co-invests $1,000,000, so investors contribute $10,000,000. The deal has an 8% compounding preferred return, splits 70%/30% until investors reach a 15% IRR, and splits 60%/40% after that.
In Years 1 to 4, the deal distributes $500,000 to $650,000 a year. That is less than the preference accruing, so all of it goes to the preferred return and the unpaid balance reaches $1,035,514 by the end of Year 4.
Year 5 distributes $20,700,000, including the sale. It pays the remaining $1,918,355 of preference and returns $10,000,000 of capital. The next $7,061,761 is split 70%/30% until investors reach a 15% IRR: $4,943,233 to investors and $2,118,528 of promote. The last $1,719,884 is split 60%/40%.
LPs receive $18,174,166: a 2.02x equity multiple and a 16.26% IRR. The GP receives $2,019,352 on its co-invest plus $2,806,482 of promote, 21.6% of the deal’s $13,000,000 profit. An LP who invested $100,000 receives $201,935.
Load the Catch-Up Example to compare: an 8% pref, a 100% GP catch-up to 20% of profit, then 80/20. The catch-up pays the GP $1,054,589, the GP ends with exactly 20.0% of profit, and the LP IRR is 16.50%.
What This Calculator Doesn’t Do
- Periods are whole years. Contributions happen once, at the start, and distributions at each year-end. Agreements that accrue daily or pay quarterly will differ.
- There are no fees, reserves, capital calls after closing, or clawbacks.
- Catch-up and hurdles are measured across the whole deal to date.
- Results are an illustration, not investment, legal, or tax advice. Your operating agreement governs, so have your accountant or counsel confirm the terms.
How This Compares with Syndelo
This calculator models a whole deal over several years. Syndelo’s distribution waterfalls work one distribution at a time from your dated records. They accrue a simple preferred return using actual days over a 365-day year, can return capital, and support LP/GP splits, a GP catch-up, tiered IRR hurdles, and share-class terms. A second team member approves each distribution before it’s final.
In Syndelo, the catch-up applies to the current distribution rather than a lifetime true-up, and compounding preferred-return options are planned rather than available today.