A distribution waterfall is the contractual order in which proceeds from VC fund investments get distributed to limited partners (LPs) and general partners (GPs). It is typically structured with four tiers: (1) return of LP capital (LPs get their committed capital back), (2) LP preferred return (typically 8% annual hurdle on capital), (3) GP catch-up (GP captures returns until reaching 20/80 split on profits), (4) carry split (typically 80/20: 80% LPs, 20% GPs). The waterfall determines how returns flow back from successful exits and is one of the most-important structural elements of fund economics. Distinct from "liquidation waterfall" (which is how proceeds from a portfolio company exit get distributed among stockh...