If you deal in joint venture deals, want to learn about how those deals are financed, and/or need a standalone template to plug in cash contributions and distributions, this model will work for you over and over again. It is the most basic and general version of a cash flow waterfall with 3 IRR hurdles. This is a great place to start for any joint venture endeavor. The incentives that result from this make it a win / win for the LP (investor) and GP (sponsor/operator).
Recent Update: Added a DCF Analysis with NPV for the Limited and General Partner.
If you want to see the next level of this template, here is the version with a GP catch-up option.
The incentive structure is really simple. Using this logic gives the GP motivation to give better returns to the LP. As the returns get better for the LP, the GP will get a greater share of the cash flow that is available to distribute.
The most common types of endeavors this gets used in is predictable cash flow operations such as real estate and oil and gas, but you could use it for literally anything. Also, the first hurdle can be thought of almost like a preferred equity rate (hard or soft) because up until that rate, the cash could be split however you want to define. For hard equity, you could structure it 100% LP / 0% GP, meaning until the LP receives a x% IRR (they received all of their initial investment back plus a desired return), all the cash goes to the LP.
You could also structure the first hurdle as a pari passu (you get out what you put in) so up until the LP gets their first hurdle rate, cash is distributed in proportion to how it was contributed. This really makes the GP want to achieve a better return for the LP, otherwise they have to do all the work and only get a return based on the cash they contributed. The GP does not want that and instead they want to receive a greater share of cash than what they contributed in exchange for the work they are doing. The GP handles all business activity / work while the LP just writes the check.
This template is a staple for joint venture modeling.
You may also be interested in this STR (Short-term Rentals) real estate model that uses the template above as an output for the option to do a joint venture, however it is modified to run on a basis of monthly cash flow periods.
More Joint Venture Cash Flow Waterfall Templates
- Preferred Return - Multiple GP Catch-up Options
- Preferred Return
- Preferred Equity with a Subordinate IRR Hurdle Waterfall
- Preferred Equity (equity multiple hurdle)
- General Cash Flow Waterfall: 3 IRR Hurdles and GP Catch-up Provision
- Preferred Return - Simple Interest / Multiple Hurdles / Non-Compounding
- Preferred Return Fund Tracker
- Cumulative Distributions
- Mixed-Use Real Estate
- Multi-family Real Estate Acquisition
- Joint Venture Model - IRR Hurdles / Waterfall
- Hedge Fund Fee Model
- Self Storage: Multi-Fund
