A catch-up distribution is the waterfall tier where one party receives 100% of proceeds until reaching a target share of cumulative distributions. It is used in VC fund economics (GP catch-up after LP preferred return) and occasionally in portfolio-company liquidation waterfalls, balancing priority for one party with ensuring the other achieves its target share (e.g., GPs catching up to 20% carry). It is the structural mechanism that resolves the tension between "first money out" priorities and "fair share" ultimate splits.
The most common application: VC fund distribution waterfall.
Fund distribution waterfall (4 tiers):
Tier 1: Return of LP capital. LPs get committed capital back.
Tier 2: LP preferred return. LPs get...