Hurdle Rate Waterfall Distribution Calculator
PE and VC fund distributions flow through a waterfall: return of LP capital → preferred return (hurdle) → GP catch-up → 80/20 split. Calculate exactly how proceeds are split at each stage based on your fund's MOIC and hurdle.
| Capital Invested | — |
| Total Proceeds | — |
| Tier 1: Return of Capital → LP | — |
| Tier 2: 8% Preferred Return Amount | — |
| Tier 2: Hurdle to LP (actual) | — |
| Tier 3: GP Catch-Up | — |
| Tier 4: 80% to LP | — |
| Tier 4: 20% to GP | — |
| Total to LP | — |
| Total to GP (carry) | — |
The Four-Tier Waterfall
Standard PE/VC distribution waterfall has four tiers: (1) Return of LP capital — LPs get back every dollar they invested before anyone else. (2) Preferred return (hurdle) — LPs earn a compounded 8%/year on capital before GP earns carry. (3) GP catch-up — GP earns 100% of remaining profits until they've reached their target carry share (e.g., 20% of total profits). (4) 80/20 split — remaining profits split 80% LP / 20% GP.
Each tier must be exhausted before moving to the next. If proceeds don't cover the LP capital + hurdle, the GP earns zero carry. This protects LPs in below-target funds.
Source: ILPA Principles 3.0 standard waterfall + sec.gov
Catch-Up: 100% vs Partial
A 100% catch-up means the GP takes 100% of post-hurdle profits until they've reached their target 20% of total profits. Once caught up, the standard 80/20 split applies. Economically, the GP earns exactly 20% of all profits above the LP's capital return.
A partial catch-up (50% or 25%) leaves more of the post-hurdle bucket with LPs. The GP catches up more slowly. Sophisticated LPs (CalPERS, endowments) increasingly demand partial catch-ups or no catch-up at all. The economic difference can be 2-4% of total fund profits.
American vs European Waterfall
American (deal-by-deal): Each portfolio company exit runs through the full waterfall independently. GP earns carry on winners even if other portfolio companies later lose money. Faster GP cash but creates clawback risk.
European (fund-as-a-whole): GP only earns carry after the full fund has returned LP capital plus hurdle in aggregate. Slower GP cash, but no clawback risk to LPs. See our European vs American comparison.
Why Hurdle Rate Matters
The 8% hurdle is the IRR LPs must earn before the GP earns any carry. If a fund returns 2x in 10 years (roughly 7% IRR), the GP earns zero carry — even though LPs doubled their money — because the hurdle wasn't met. This aligns GP incentives with LP returns.
Some funds (typically growth equity or sector-focused) use lower hurdles (5-6%); some use higher (10%). VC funds increasingly use no hurdle but with stricter clawback. The hurdle is the single biggest LP-friendly term LPs negotiate.