Whole-fund / European waterfall
Last updated
Quick Answer
A whole-fund, or European, waterfall pays carried interest only after limited partners have received all contributed capital and their preferred return across the entire fund.1,2
What it is
Distributions from early exits go to limited partners until the fund-level threshold is met, so the general partner is paid later than under a deal-by-deal structure. Because carry cannot be paid before the fund-wide test is satisfied, this structure largely removes the overpayment exposure that clawback provisions address.1,2
Operational context
What good looks like
Why It Matters
Choosing between whole-fund and deal-by-deal is the largest timing decision in a fund's economics, and it determines whether the clawback machinery downstream of it has anything left to do.1
Common mistakes
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 a European waterfall?
A European, or whole-of-fund, waterfall pays carried interest only after limited partners have received back all contributed capital plus their preferred return across the entire fund.
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 Whole-fund / European waterfall in venture capital?
Distributions from early exits go to limited partners until the fund-level threshold is met, so the general partner is paid later than under a deal-by-deal structure.
Why is Whole-fund / European waterfall important for startups?
Understanding Whole-fund / European 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 whole-fund, or European, waterfall pays carried interest only after limited partners have received all contributed capital and their preferred return across the entire fund.)primary · T1 · waterfall-models · structure
- 2.ilpa-model-lpa-wof — ILPA Model Limited Partnership Agreement — Whole-of-Fund Waterfall (July 2020)ILPA Model Limited Partnership Agreement — Whole-of-Fund Waterfall (July 2020)ILPA(A whole-fund, or European, waterfall pays carried interest only after limited partners have received all contributed capital and their preferred return across the entire fund.)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 whole-fund, or European, waterfall pays carried interest only after limited partners have received all contributed capital and their preferred return across the entire fund.)primary · T1 · waterfall-models · structure
- 4.preqin-pro-glossary — Preqin Pro Glossary of TermsPreqin Pro Glossary of TermsPreqin (BlackRock)(A whole-fund, or European, waterfall pays carried interest only after limited partners have received all contributed capital and their preferred return across the entire fund.)secondary · T2 · waterfall-models · structure
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