IRR/MOIC & Waterfall Models

This guide explains how to model IRR, money multiple and distribution waterfalls for funds, VC, PE and family offices in Model Reef.

You will:

• Use deal and fund cashflows to derive IRR and MOIC.

• Represent preferred return, catch up and carry structures conceptually.

• Explore LP and GP economics under different scenarios.

• Use waterfalls as an overlay on fund cashflows.

Model Reef does not implement a full legal waterfall engine with every clause variant. It supports planning level and scenario based waterfall modelling using structured drivers and formulas.

When to use this pattern

Use this pattern when:

• You need IRR and MOIC calculations for deals or funds.

• You want to understand LP versus GP outcomes under different cases.

• You model preferred return and carry structures in planning.

• You prepare scenario based waterfall illustrations for IC or LPs.

It builds on:

• Portfolio Company Forecasting

• Fund Cash Flow (Capital Calls and Distributions)

• Build a Multi Scenario Valuation Pack

Architecture overview

IRR, MOIC and waterfall modelling uses:

• Cashflow inputs

  • Deal level cashflows.

  • Fund level cashflows.

• Performance metrics

  • Gross and net IRR.

  • Gross and net MOIC.

  • DPI, RVPI and TVPI where required.

• Waterfall logic

  • Return of capital.

  • Preferred return (hurdle).

  • Catch up.

  • Carry split between LPs and GP.

1

Prepare deal and fund cashflow series

For each deal or fund, create a time series of cashflows, for example:

• Investments (negative cashflows).

• Distributions and exit proceeds (positive cashflows).

• Residual value at horizon (positive).

Store these as variables or Data Library series such as:

• Cashflows - Deal A.

• Cashflows - Fund I - Gross.

• Cashflows - Fund I - Net of Fees.

Ensure that timing and sign conventions are consistent.

2

Compute IRR and MOIC from cashflows

Using the cashflow series, compute:

• IRR as the discount rate that sets NPV to zero.

• MOIC as total positive cashflows plus residual value divided by total negative cashflows.

These can be implemented using internal discounting logic consistent with the valuation engine, or by exporting periodic cashflows and applying IRR functions externally.

You can calculate:

• Deal level IRR and MOIC.

• Fund level IRR and MOIC.

• Gross and net variants where you include or exclude fees and carry.

3

Represent a simple distribution waterfall

To approximate a typical private equity style waterfall, model layers such as:

Return of capital

• LPs receive distributions until they have received back paid in capital.

Preferred return

• LPs receive a preferred return on paid in capital, for example 8 percent per year.

Catch up

• GP receives a high share of distributions until their share of profits reaches a target percentage.

Carry split

• Remaining profits are split between LPs and GP according to carried interest terms.

Implement this with:

• Drivers for hurdle rate, carry percentage and catch up structure.

• Variables that allocate total distributions into LP and GP buckets according to these rules.

• Iterative or approximate logic that is sufficient for planning, not legal settlement.

4

Connect waterfall outputs to fund metrics

Once you have LP and GP split distributions, compute:

• LP IRR and MOIC based on LP cashflows.

• GP IRR and MOIC based on GP cashflows if desired.

• Net to LP metrics compared with gross fund metrics.

You can also derive:

• Carry in currency over time.

• Timing of carry crystallisation under different exit patterns.

• Sensitivity of GP economics to fund performance.

This helps in structuring and negotiating fund terms and in understanding incentives.

5

Use scenarios for performance and terms

Clone base fund or deal models into scenario models to explore:

• Different exit timings and valuations.

• Alternative commitment sizes and pacing.

• Different preferred return and carry structures.

• Different GP commitment levels.

In each scenario, adjust:

• Deal and fund cashflow profiles.

• Waterfall parameters (hurdle, carry, catch up).

• Any related fee and expense assumptions.

Compare scenarios using:

• IRR and MOIC for LPs and GP.

• Carry amount and timing.

• Distribution patterns over fund life.

• Alignment of incentives between LP and GP.

Check your work

• Cashflow inputs reflect correct timing and sign conventions.

• Waterfall parameters align with term sheets or LPA drafts.

• Approximate waterfall logic is clearly labelled as planning stage, not definitive.

• Scenario outputs are used for structuring and negotiation discussions.

Troubleshooting

• IRR values appear extreme or unstable Check for missing or mis-signed cashflows and ensure that residual value is not being double counted.

• Waterfall does not match detailed legal models Remember this pattern is for planning and scenario work. Use specialist tools or spreadsheets for exact legal calculations and reconcile key points rather than every detail.

• Too many deals make portfolio waterfall modelling hard Focus waterfall analysis on funds and a limited set of representative or large deals rather than trying to model every asset in full detail.

Related guides

• Build an Equity Valuation Model (FCFE)

• Build an Executive Dashboard

• Viewer Permissions

• Scenario Syntax