A Distribution Waterfall is a way to allocate investment returns or capital gains among participants of a group or pooled investment. The waterfall assigns different priority levels to each participant, with the highest priority going to the original investor. Returns are then distributed down the line until all investors have been paid their agreed-upon share. This system helps ensure that everyone in the group benefits from successful investments and that everyone shares in losses as well.The distribution waterfall is an important tool for pooled investments, such as mutual funds and venture capital funds. By ensuring that all participants receive their fair share of profits and losses, it helps prevent disputes and keep everyone invested in the success of the fund. In addition, it can help attract new investors by demonstrating a commitment to fairness and accountability.
