A waterfall chart is a step-by-step visual of how numbers move from a starting point to an ending point — each bar showing what added or subtracted along the way.

How it works

Common startup uses:

• ARR bridge: beginning ARR + new logos + expansion − churn − downgrades = ending ARR
• Cash bridge: opening cash + financing + operating cash flow − capex = closing cash
• Exit proceeds: enterprise value − debt − fees − series preferences − participation = common pool

Charts use floating columns — color green for positive deltas, red for negatives, anchored totals at start and end. Tools include Excel, Google Sheets, and BI platforms.

In M&A, lawyers and bankers produce exit waterfall charts at multiple price points so founders see sensitivity to earn-outs and escrows.

Fund LP reporting sometimes waterfalls cumulative distributions — paid-in capital returned, then profit splits — aligning with fund waterfall mechanics.

Why it matters

• Founders: Boards digest variance faster when bridges are visual, not buried in tables. Tie narrative to drivers — pricing, seasonality, one-time items.
• Investors: Waterfall charts expose whether small exit price changes wipe out common. Insist on updated charts when term sheets change preferences.

Common mistake

Building exit waterfall charts without option pool exercise and transaction bonuses — common holders look better on paper than in reality.

Related ideas

See also waterfall, liquidation waterfall, and ARR bridge reporting.