# ToMotion AI Video Prompt: Private Equity Waterfall — Step-by-Step Calculation
**Duration:** 2–3 minutes
**Style:** Professional Private Equity fund accounting trainer, natural human narration, simple English, realistic cash-flow animations, white background, navy blue and green highlights.
## Scene 1 — Types of Waterfalls (0:00–0:20)
Explain:
1. **European waterfall:** Distributions are generally calculated at the whole-fund level before carry becomes payable.
2. **American waterfall:** Distributions and carry are generally assessed investment by investment, subject to the agreement and possible clawback.
3. **Tiered waterfall:** Cash is distributed through contractual stages, such as capital return, preferred return, GP catch-up, and profit sharing.
Visual: Compare a whole-fund waterfall with a deal-by-deal waterfall.
## Scene 2 — Introduce the Example (0:20–0:35)
Use Summit Equity Fund I.
| Input | Amount |
|---|---:|
| Original LP capital | ₹100 crore |
| Total exit proceeds | ₹160 crore |
| Preferred return | 8% per year |
| Holding period | 3 years |
| GP carried interest | 20% |
| LP profit share after catch-up | 80% |
Assume all capital was contributed at the beginning, proceeds are received after three years, the preferred return compounds annually, and the GP receives a full catch-up.
## Scene 3 — Step 1: Return of Capital (0:35–0:50)
**Explain:** First, return the original invested capital to the LPs.
**Formula:**
Cash remaining = Total exit proceeds − Original capital
**Calculation:**
₹160 crore − ₹100 crore = **₹60 crore remaining**
**Visual:** Show ₹100 crore flowing to LPs and ₹60 crore remaining for the next waterfall tier.
## Scene 4 — Step 2: Calculate Preferred Return (0:50–1:10)
**Explain:** Calculate the LPs' preferred return at 8% annually for three years, using annual compounding.
**Formula:**
Preferred return = Capital × [(1 + Annual rate)^Years − 1]
**Substitute the numbers:**
= ₹100 crore × [(1 + 0.08)³ − 1]
= ₹100 crore × [1.259712 − 1]
= ₹100 crore × 0.259712
= **₹25.97 crore** (rounded)
**Calculate the remaining cash:**
₹60 crore − ₹25.97 crore = **₹34.03 crore**
**Visual:** Animate ₹25.97 crore to LPs as preferred return, leaving ₹34.03 crore.
## Scene 5 — Step 3: Calculate GP Catch-Up (1:10–1:35)
**Explain:** After LPs receive their preferred return, the GP receives 100% of the catch-up tier until the GP's share reaches 20% of the eligible profit distributed through this stage.
**Formula:**
GP catch-up = Preferred return × Carry percentage ÷ (1 − Carry percentage)
**Substitute the numbers:**
= ₹25.9712 crore × 20% ÷ 80%
= ₹25.9712 crore × 0.20 ÷ 0.80
= **₹6.49 crore** (rounded)
**Calculate the remaining cash:**
₹34.0288 crore − ₹6.4928 crore = **₹27.54 crore**
**Visual:** Show ₹6.49 crore flowing to the GP under “Catch-Up,” leaving ₹27.54 crore.
## Scene 6 — Step 4: Split the Remaining Profit (1:35–1:55)
**Explain:** After the catch-up, split the remaining cash 80% to LPs and 20% to the GP.
**LP formula:**
LP share = Remaining cash × 80%
= ₹27.536 crore × 0.80
= **₹22.03 crore**
**GP formula:**
GP carry = Remaining cash × 20%
= ₹27.536 crore × 0.20
= **₹5.51 crore**
**Visual:** Split ₹27.54 crore into two animated streams: 80% LPs and 20% GP.
## Scene 7 — Step 5: Reconcile the Waterfall (1:55–2:20)
Display each calculation and verify the total.
**LP total distribution:**
LP total = Capital returned + Preferred return + Final LP profit share
= ₹100 crore + ₹25.9712 crore + ₹22.0288 crore
= **₹148 crore**
**GP total distribution:**
GP total = Catch-up + Final GP carry
= ₹6.4928 crore + ₹5.5072 crore
= **₹12 crore**
**Final reconciliation formula:**
Total distributions = LP total + GP total
= ₹148 crore + ₹12 crore
= **₹160 crore**
Compare this with the original exit proceeds of ₹160 crore. The waterfall balances.
**Visual:** Show a final split: LPs receive ₹148 crore and the GP receives ₹12 crore.
## Scene 8 — Final Recap (2:20–2:30)
Narration:
“Remember the waterfall sequence: return capital, pay the preferred return, complete the GP catch-up, and split the remaining profits. Always check the LPA because real fund waterfalls may use different hurdles, catch-up terms, compounding conventions, and clawback provisions.”
Visual: Display the four steps:
1. Return of capital
2. Preferred return
3. GP catch-up
4. 80/20 profit split
## Production and Accuracy Rules
- Show each formula before substituting the numbers.
- Keep the formula, calculation, and narration synchronised.
- Use unrounded amounts internally and round displayed results to two decimal places.
- Do not change the figures or skip a calculation.
- Label all figures as illustrative.
- Explain that a preferred return is contractual, not guaranteed.
- State that actual carry allocation and accounting depend on the LPA and applicable accounting policy.
