Why period-by-period matters

Most free waterfall calculators apply the tier splits to total profits at the end — which quietly misprices the preferred return and overstates or understates the promote, sometimes by six figures on a mid-size deal. This model distributes each year's cash in sequence: accrued pref first (compounding annually when unpaid), then return of capital, then the tier-one split until the LP's actual IRR reaches the hurdle, then tier two above it. That's how the lawyers wrote it, so that's how the math should run. Promote structures explained.

Reading the output

The LP card answers an investor's question: what do I earn and when does my capital come back. The GP card answers the sponsor's: how much of my income is co-invest return versus promote — the carried interest earned by outperforming the hurdle. The annual ledger shows every dollar's path through the tiers, which is exactly the table to drop into an investor deck.