Terms of Use

Equity Waterfall helps prospective employees at private-equity-backed companies model what their equity grant might be worth at exit under various scenarios. It implements a simplified four-step PE distribution waterfall, accepts user inputs for the cap table and deal terms, and shows the modeled payouts.

The purpose is educational: to make a complex set of mechanics — debt seniority, sponsor preferred returns, GP carry, MIP gating — legible to someone who does not have a finance background.

• Not financial advice. Outputs are illustrative results from a simplified model. They are not predictions, recommendations, or appraisals.
• Not legal or tax advice. Equity grants have material legal and tax implications (options vs RSUs vs profits interests, AMT, ISO/NSO treatment, 83(b) elections) that this tool does not address.
• Not a substitute for due diligence. You should independently verify every assumption, ask the employer for actual deal terms in writing, and consult qualified professionals before making any decision.

• Default values illustrate a plausible PE-backed software company shape. They are not estimates of any specific company.
• The four-step waterfall implements a simplified version of a real LBO distribution. Real deal documents may differ substantially: side letters, tax distributions, escrow holdbacks, working-capital adjustments, and earn-outs are not modeled.
• Specific deal terms — sponsor cash basis, MIP pool size, performance unlock thresholds, liquidation preferences, sponsor preferred / PIK shareholder loan structures, leaver provisions — are private and rarely disclosed by the company or the sponsor. You must input your own best estimates.

Real outcomes may differ from the modeled outputs because of:

• Vesting acceleration, double-trigger acceleration, clawbacks, and good-leaver / bad-leaver provisions
• Tax treatment of your specific grant type and jurisdiction
• Add-on dilution from buy-and-build acquisitions during the hold
• Recapitalizations, dividend recaps, additional equity issuances, or secondary sales mid-hold
• Exit timing materially different from your projection
• Currency fluctuations, partial exits, IPOs with lock-up periods, or transaction structures other than a clean sale
• Side letters and other private agreements between the sponsor and specific holders

By using this tool, you acknowledge that:

• You will not rely on modeled outputs to make employment, investment, or financial decisions without independent verification.
• You will consult qualified financial, legal, and tax professionals for advice specific to your situation.
• You understand that defaults reflect generic assumptions, not your actual deal.
• Any scenario you share via URL contains your inputs in the link itself; you are responsible for the audience you share with.

This tool is provided as is, without warranty of any kind, express or implied, including but not limited to warranties of merchantability, fitness for a particular purpose, and non-infringement. The authors and contributors shall not be liable for any claim, damages, or other liability arising from use of the tool or reliance on its outputs.

If we update these terms we will revise the effective date at the top of this page. Continued use after a change constitutes acceptance of the updated terms.