There are more than a few ways to organize a fund waterfall. Fund waterfalls are how all the investors get paid. The return comes in, and then all the distributions happen.
There are different ways to structure waterfalls, but the typical way is after all investments have exited, the investors (limited partners) get 80% and the managers (general partners) get 20% after the LPs are made whole. Typically, the investing life of the fund will be 5 years, and the fund will continue to exist for another 10 years before every investment has exited. Today, LPs are realizing returns from funds started as far back as 2002-2005. Our current fund is structured this way.
Recently I read that more and more general partners want to be paid on a deal by deal basis.
This is more akin to “angel style” investing. Angels get paid on a deal when it exits, and suffer the downfall when it fails as soon as it happens.
The problem with angel style is if at the end of the fund the Limited Partners haven’t been made “whole”, there is a clawback provision in which the General Partners have to pay back the Limited Partners until they are made whole.
There are benefits to getting money sooner in the angel style, but as a fund manager I certainly don’t like the clawback provision and would prefer to wait for return.