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Distribution Waterfall

    • 1 posts
    June 20, 2011 11:20 PM EDT

    I recently left my old group and am putting a new one together. I have always been an operator, and have brought in a partner w a background in investment banking to help with the money side of the business. We have been going back and forth on how the waterfall pays out.

    Assume a 8% preferred and a 60/40 split there after. Year 1 has a 20% return off of $1 million. So 200k for distribution. 8% preferred gets 80k. Then the 60/40 splits are 72k and 48k. Does that 72k get paid out as a divided, and the investor base investment remains at $1 million or does that 72k reduced the based investment. Basically, does the money distributed over the preferred rate go to paying down the investment or is it just an additional return. If it is paying down the initial investment, if the pref calculated going forward off the new balance, or the original capital invested?