waterfalls
What is a waterfall in sponsor economics?
A waterfall is the distribution logic that determines how cash moves through the stack and when the sponsor earns upside.
Waterfalls define the order of payouts, the return thresholds, and the point at which the sponsor participates in upside. A typical structure starts with return of capital, then a preferred return or hurdle, then catch-up mechanics, then the final residual split. Without a clear waterfall, the economics become ambiguous, exit modeling gets unreliable, and investor trust can break down exactly when cash is ready to move.