Carry Waterfalls in Single-Asset Vehicles: Gross Proceeds vs Realized Profit
Carta's SPV setup reference notes that supported SPVs can use carry settings and expense reserves. Carry and reserves are configurable terms at the SPV layer. Investors need to read the definition of proceeds, profit, expenses, and carry base rather than assume a standard waterfall.
Carta describes supported SPV carry settings as ranging from 0% to 100%, which underscores why document review is essential.
Carry Starts After the Waterfall's Other Claims
Carry in a single-asset vehicle should be calculated from the legal waterfall, not from the headline sale price. Gross proceeds may first pay transaction costs, debt, taxes, reserves, and return of investor capital. Carry may then apply to the remaining profit, depending on the documents. The key question is whether carry is charged on gross proceeds, realized profit, or another defined amount.
Follow the Cash in Order
| Step | Possible use of cash | Question |
|---|---|---|
| 1 | Pay sale costs, taxes, debt, and vehicle liabilities | Which expenses reduce distributable proceeds? |
| 2 | Return investor capital | Is all contributed capital included? |
| 3 | Pay any preferred return or hurdle | How is time and compounding treated? |
| 4 | Allocate carry and remaining profit | What rate and catch-up apply? |
| 5 | Hold or release reserves | When does final cash reach investors? |
Gross Proceeds Are Not Profit
If investors contribute $100 million and the asset sells for $150 million, gross profit is not automatically $50 million. Vehicle expenses, follow-ons, and transaction costs may change the invested basis and cash available. The waterfall should define whether unused reserves and returned expenses count as capital, proceeds, or both.
Partial Sales Need Special Care
A vehicle may sell only part of the position. Carry taken on the first sale can be too high if the remaining shares later lose value. Clawback, escrow, or delayed carry can protect investors from that sequence. The documents should explain how realized profit is measured across several distributions.
Consider an SPV that invested $100 million in one company. It later sells half of the position for $80 million and allocates $50 million of cost to those shares. If the manager treats the $30 million difference as realized profit, 20% carry would equal $6 million. Now assume the remaining shares are sold later for only $20 million. Total proceeds are $100 million, so the vehicle has made no overall profit before expenses even though carry was paid after the first sale.
This is why partial-sale language matters. The documents should say how cost is allocated between sold and unsold shares, whether early carry is held in escrow, when a clawback is tested, and whether reserves can delay the final calculation. Two vehicles can own the same security and receive the same sale proceeds while producing different investor distributions because their definitions and timing rules are different.
The same question appears when a company distributes cash and shares in the same transaction. Cash may be available for an immediate distribution, while the shares remain subject to a lock-up or are difficult to value. If carry is calculated before those shares are sold, investors need to know which value is being used and what happens if the market price later falls. Waiting for realized cash is simpler, although the documents may still allow reserves for taxes, expenses, or claims connected with the sale.
Questions Before Commitment
- What is the carry base? Gross proceeds, profit, or another term.
- What capital is returned first? Investment, fees, expenses, and reserves.
- Is there a hurdle? Rate, compounding, and catch-up.
- What protects partial-sale outcomes? Escrow or clawback.
- When are reserves released? Final distribution timing.
A short waterfall example should be included in the investment materials. If investors cannot reproduce the carry from the stated inputs, the economics are not yet clear.
Carry on Realized Profit
Carta describes supported SPV carry settings as ranging from 0% to 100%; a $10 million investment sold for $30 million creates $20 million of gross profit, and 20% carry on profit would equal $4 million before other expense ordering rules.
This is the clean version. Real documents may deduct expenses first, return capital first, apply a preferred return, or hold back amounts for tax and indemnities.
Gross Proceeds Versus Net Profit
If $1 million of sale and administration costs are deducted before carry, the $20 million gross profit becomes $19 million. At 20% carry, the carry falls from $4 million to $3.8 million, and total investor proceeds fall to $25.2 million before taxes or holdbacks.
Expense ordering and carry base can change net investor proceeds even when company exit proceeds are unchanged. The calculated example uses $10 million of invested capital, $30 million of sale proceeds, $1 million of expenses, and 20% carry on the $19 million profit remaining after expenses.
Single-Asset Carry Bridge
Expense ordering and carry base can change net investor proceeds even when company exit proceeds are unchanged.
View bridge data and assumptions
| Step | Amount | Calculation |
|---|---|---|
| Sale proceeds | $30,000,000 | Illustrative exit proceeds. |
| Invested capital | $10,000,000 | Capital returned as part of total investor proceeds. |
| Expenses before carry | -$1,000,000 | Sale and administration costs deducted before carry. |
| Profit after expenses | $19,000,000 | $30M less $10M invested capital and $1M expenses. |
| Carry | -$3,800,000 | 20% x $19,000,000 profit after expenses. |
| Total investor proceeds | $25,200,000 | $30M less $1M expenses and $3.8M carry. |
Investor-Level Net Proceeds
If an investor owns 10% of the SPV and the vehicle has $25.2 million of total proceeds after the stated waterfall, the investor receives $2.52 million before investor-level taxes or adviser fees.
Investors should model their own percentage, not only the sponsor-level waterfall.
Frequently Asked Questions
Is carry always charged only on profit?
Read the definition: Many waterfalls focus on realized profit, but the document language determines the actual carry base, timing, and expense ordering.
Why does expense ordering matter?
Because it changes the base: Deducting expenses before carry usually lowers carry compared with calculating carry before those expenses.
Related Reading
SPV fees and carry, European vs American carry waterfalls, and MOIC vs IRR.