A series of videos explaining the most common distribution waterfall used in private equity is available below. (For a written explanation please click here.)
A standard distribution waterfall is made complicated only by the amount of vocabulary used to describe how it works. The math is otherwise simple, as these videos demonstrate.
Whiteboard Visual Overview: A visual overview of what takes place in a distribution waterfall.
First Excel Example: The first Excel template excludes the 20% catch-up provision to make the math easy to follow.
Catch-Up Calculation Whiteboard Example: The language describing the catch-up provision in a distribution waterfall has resulted in many emails asking for clarification. This video demonstrates how simple it is.
First Catch-Up Example: The second Excel template introduces the catch-up provision. This example makes it very easy to check your own work should you mirror the exercise yourself.
Private Equity Catch-Up Provision: The final example introduces language that would be found in legal documents detailing a distribution waterfall, and demonstrates how small changes to language can be meaningful. It follows with the calculation for the most standard private equity distribution waterfall, and concludes with some thoughts on how to check your work.
If you are new to private equity, a description of fund structure might be helpful before proceeding with the videos: Private Equity Fund Structure