An equity waterfall is the agreed order in which a deal’s profits are split between investors and the sponsor. Cash flows "down" through tiers — typically a return of capital, then a preferred return, then promote splits — each filling before the next begins.
A common structure returns investor capital, pays a preferred return, then splits remaining profit (the sponsor’s share above the pref is the "promote" or carried interest). Waterfalls align incentives: the sponsor earns more only after investors hit their hurdles.
See how EagleCap structures multifamily investments for passive investors.
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