How to create a waterfall model
For investors
The waterfall modeling tool allows you to model exit scenarios for your portfolio company and understand the economic impact on share classes and top stakeholders.
You can find this tool by navigating to the page for one of your portfolio companies, and go to the Scenario modeling tab.
To create a new model, click Waterfall.
Enter inputs
Exit value: This represents the purchase price at which the company will be acquired or the total market cap at which the company will IPO.
Non-convertible debt: This input allows you to add any outstanding debt the company will have at the projected exit date that is not already captured on the capitalization table stored on Carta. This may include loans and other types of liabilities.
Exit date: This date is intended to reflect the day at which the company will be acquired, IPO, or the date that your holdings will be liquidated. The exit date is used to decide the 'as of' date of the capitalization table. The waterfall will use this ‘as of’ date to determine vesting of equity awards and any interest or dividend accrual amounts.
Selected cap table: For users that have created cap tables through the financing round modeling tool or pro-forma valuations tool on Carta, you are able to switch the cap tables used in the scenario to any of the created cap tables.
Advanced terms
Under advanced terms a user can choose between normal and accelerated vesting. Normal vesting follows the normal vesting schedule up to the exit date, and accelerated vesting calculates payouts assuming all options have vested on the exit date.
Outputs
- Key metrics card: Shows you the cost of holdings, projected proceeds, projected IRR, projected return multiple based off the exit scenario.
- Distributions: The distributions chart allows you to see a range of outcomes for your firm, top 5 shareholders, and share classes.
- Payouts: Shows you the payouts for the exit scenario for by share class and top stakeholders.
- Detailed results for your firm: Shows you the payouts and return multiple to your funds.
Export and share
Waterfall models can be saved and exported from the waterfall feature for easier sharing with investors and other team members.
Click the Export button, select your desired format, and wait for the report to be generated.
The downloadable report will be available under Downloads.
Goal seek
Investors using the tool have the ability to goal seek to a desired IRR, Return multiple, or Payout.
The goal seek will solve for required exit value needed to generate the inputted IRR, Return multiple, or Payout.
What math and assumptions does the waterfall modeling tool use?
The waterfall tool calculates payouts based on your cap table data and a modeled exit value using the same breakpoint calculations that drive our industry-leading valuation software.
Convertible notes: Convertible debt, equity, and SAFEs accrue interest until the selected exit date. Based on their rights and preferences, they convert to common stock according to the modeled exit value and their valuation cap.
Options and equity awards: All issued equity awards are assumed to be fully-vested in the exit scenario.
Selected exit date: The selected exit date is used to determine the vested portion of equity awards unless you select accelerated vesting.
Cases that are not currently supported:
Management carve-outs and post-exit terms
Anti-dilution provisions