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Distribution Waterfall
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?
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?
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