European Waterfall Model

Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.

Venture capital funds use different payback structures.

Each varies the structure for how the Limited Partners receive their returns.

The European waterfall model does not pay back the carried interest to the general partners until the limited partners have received all their capital and return.

The American waterfall model pays the general partners on a deal-by-deal basis.

This spreads the risk over several deals and throughout the life of the fund.

The American model works at the deal level.

The European model works at the fund level.

The American model gives equal precedence to the managers and the investors.

The European model gives precedence to the investors.

Other factors to consider include the carry rate and the management fee.

In raising funds, consider the payback structure for the investors.

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

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