waterfalls
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Quick Answer
Waterfall Catch-Up is a structure used by distribution and carry economics to manage waterfall economics with clearer timing, ownership, and follow-through.
Waterfall Catch-Up is the part of the waterfall that lets the sponsor receive a larger share of distributions after investors have received return of capital and any preferred return. It should specify whether the catch-up is full or partial, how it interacts with the hurdle, and whether the calculation is tested deal-by-deal or across the vehicle.
In Practice
Example: A sponsor uses Waterfall Catch-Up to test whether the sponsor catch-up begins only after the preferred return is paid and whether the resulting split matches the promote language in the LPA or SPV agreement.
Why It Matters
Waterfall Catch-Up matters because catch-up math can materially change when the sponsor receives carry. A small drafting or modeling mismatch can turn an intended promote into an investor dispute at the exact moment distributions are being made.
VC Beast Take
SponsorBeast treats Waterfall Catch-Up as waterfall operating content, not a generic finance definition. The useful read is how it explains catch-up timing, hurdle satisfaction, and whether the sponsor's share is calculated before or after investors reach the negotiated return in a way that matches both the model and the governing agreement.
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Waterfall Catch-Up is the part of the waterfall that lets the sponsor receive a larger share of distributions after investors have received return of capital and any preferred return.
Understanding Waterfall Catch-Up is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
Waterfall Catch-Up falls under the waterfalls category in venture capital. This area covers concepts related to important concepts in venture capital.
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