Waterfall & Promote (Carried Interest)

The equity waterfall is the agreed order in which a deal's cash flows are distributed between the limited partners (LPs, the passive capital) and the general partner (GP, the sponsor). A typical structure: return of capital, then a preferred return (e.g. 8% to LPs), then a GP catch-up, then a promote split above the hurdle.

The promote (or carried interest) is the GP's outsized share of profits above the preferred return — for example, 20% of profits over an 8% pref. It's how sponsors are rewarded for performance.

Why it matters: the waterfall determines what the LP actually nets, which can differ sharply from the deal-level IRR and equity multiple. Two deals with identical gross returns can deliver very different LP outcomes depending on pref, catch-up, and promote.

UpsideIQ models the LP/GP split so you see the investor-level return, not just the deal-level number.