# American Waterfall

The **American waterfall** (also called the **deal-by-deal waterfall**) allows the GP to earn [carried interest](/waterfall-and-distributions/carried-interest.md) on an exit-by-exit basis. After each exit, if the LPs for *that deal* have received return of capital and [preferred return](/waterfall-and-distributions/preferred-return.md) on the amount invested in that deal, the GP earns carry on the remaining profit — without waiting for the rest of the portfolio.

## How It Works

For each exit, a mini-waterfall is applied to the proceeds from that deal:

```
Per-deal Tier 1 — Return of deal capital
  LP receives proceeds until their invested capital in this deal is returned

Per-deal Tier 2 — Preferred return on deal capital
  LP receives 8% p.a. on the deal investment, from investment date to distribution date

Per-deal Tier 3 — GP catch-up (on this deal's profits)
  GP receives until they hold agreed carry % of this deal's profits

Per-deal Tier 4 — Residual profit split 80/20
```

The fund-wide capital position is not considered at each distribution.

## GP-Favorable Properties

The American model benefits the GP in two ways:

1. **Earlier carry receipts.** A strong early exit generates carry before the fund is fully realized. GPs can recycle carry to invest in the next fund or distribute to their own team.
2. **Deal-level attribution.** Each deal is evaluated independently, which suits managers who believe their deals are distinctly strong and should not be blended with weaker ones.

## Clawback Obligation

Because the GP earns carry deal-by-deal, the cumulative carry taken over a fund's life can exceed what the overall fund performance would entitle them to. If later deals underperform, the fund-level carry entitlement may be lower than carry already paid.

A robust [**clawback**](/waterfall-and-distributions/clawback.md) **provision** is essential in American waterfall structures — it requires the GP to return the excess at wind-down. Most LPAs also require a **carry escrow** — the GP holds a percentage (typically 20–30%) of carry receipts in escrow until the fund is fully realized, ensuring funds are available for any clawback obligation.

## Comparison with European Waterfall

|                       | American                     | European                                                 |
| --------------------- | ---------------------------- | -------------------------------------------------------- |
| Carry timing          | Deal-by-deal                 | Fund-wide, after all capital + preferred return returned |
| LP protection         | Lower                        | Higher                                                   |
| Clawback likelihood   | Higher                       | Very low                                                 |
| Accounting complexity | Higher (deal-level tracking) | Simpler (fund-level running totals)                      |

See [European Waterfall](/waterfall-and-distributions/waterfall-european.md) for the full contrast.

## How Gildi Implements It

When a fund is configured with an American waterfall, Gildi tracks cost basis and preferred return accrual per portfolio company per LP. Each distribution triggers a deal-level waterfall calculation. The carry escrow balance is maintained as a separate ledger and is reconciled against the fund-level carry entitlement at wind-down.


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