Deal-by-deal / American waterfall
Last updated
Quick Answer
A deal-by-deal, or American, waterfall applies the distribution tiers to each realized investment separately rather than across the fund as a whole.1,2
What it is
Under this structure the general partner may receive carry on an early profitable exit while other investments remain unrealized. It is more favourable to the general partner on timing, and it is the structure that makes clawback, escrow and holdback provisions necessary — because carry paid on one deal may prove to have been unearned once the fund's cumulative result is known.1,2
Operational context
What good looks like
Why It Matters
This is the structure that produces the timing advantage general partners negotiate for, and simultaneously the structure that makes clawback, escrow and holdback provisions load-bearing rather than boilerplate.1
Term Family
Related Questions
Is European waterfall deal by deal?
No — they are the two opposing structures, and the terms are not interchangeable.
What is the American waterfall approach?
The American, or deal-by-deal, waterfall calculates carried interest on each realized investment separately rather than across the fund as a whole.
What is the difference between American and European distribution waterfalls?
The American waterfall applies the tiers deal by deal, so the general partner can receive carry on a profitable exit while other investments are still held; the European waterfall applies them across the whole fund, so carry is paid only after limited partners have recovered all contributed capital and their preferred return fund-wide.
Frequently Asked Questions
What is Deal-by-deal / American waterfall in venture capital?
Under this structure the general partner may receive carry on an early profitable exit while other investments remain unrealized. It is more favourable to the general partner on timing, and it is the structure that makes clawback, escrow and holdback provisions necessary — because carry paid on one...
Why is Deal-by-deal / American waterfall important for startups?
Understanding Deal-by-deal / American waterfall is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
Sources & References
- 1.ilpa-principles-3 — ILPA Private Equity Principles 3.0 (2019)ILPA Private Equity Principles 3.0 (2019)ILPA(A deal-by-deal, or American, waterfall applies the distribution tiers to each realized investment separately rather than across the fund as a whole.)primary · T1 · waterfall-models · structure
- 2.ilpa-model-lpa-hub — Model Limited Partnership Agreement (WOF + Deal-by-Deal versions)Model Limited Partnership Agreement (WOF + Deal-by-Deal versions)ILPA(A deal-by-deal, or American, waterfall applies the distribution tiers to each realized investment separately rather than across the fund as a whole.)primary · T1 · waterfall-models · structure
- 3.ilpa-fund-terms-2021 — Industry Intelligence Report — "What's Market in Fund Terms?" (2021)Industry Intelligence Report — "What's Market in Fund Terms?" (2021)ILPA(A deal-by-deal, or American, waterfall applies the distribution tiers to each realized investment separately rather than across the fund as a whole.)primary · T1 · waterfall-models · structure
- 4.cooley-carry-primer — Primer: Carried Interest in Private Equity and Venture Capital Funds (*TheFundLawyer*)Primer: Carried Interest in Private Equity and Venture Capital Funds (*TheFundLawyer*)Cooley LLP(A deal-by-deal, or American, waterfall applies the distribution tiers to each realized investment separately rather than across the fund as a whole.)secondary · T2 · waterfall-models · structure
- 5.preqin-pro-glossary — Preqin Pro Glossary of TermsPreqin Pro Glossary of TermsPreqin (BlackRock)(A deal-by-deal, or American, waterfall applies the distribution tiers to each realized investment separately rather than across the fund as a whole.)secondary · T2 · waterfall-models · structure
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