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The waterfall engine calculates how sale or refinance proceeds are distributed among investors based on your tier structure.

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How it works

Proceeds flow through each tier in order. Each tier defines a rule for how cash is split between LPs (members) and the sponsor until the tier is exhausted, then remaining proceeds flow to the next tier.

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Tier order

Tiers are evaluated top to bottom. A typical structure looks like:
  1. Return of capital — LPs get their equity back first
  2. Preferred return — LPs earn a preferred return (e.g. 8% cumulative)
  3. Catch-up — sponsor catches up to their promote percentage
  4. Residual split — remaining proceeds split by promote (e.g. 70/30)

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IRR and equity multiple

WaterfallIQ calculates IRR and equity multiple for each investor based on their cash flows — equity in at acquisition and distributions out at exit.

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Validation

The waterfall validates that all proceeds are fully distributed. If tiers don’t account for all proceeds, WaterfallIQ flags the gap.