---
title: "What Is Waterfall Chart?"
term: "Waterfall Chart"
description: "A waterfall chart is a visual that shows how a starting value changes through sequential additions and subtractions — common in finance for revenue bridges, fund returns, and exit proceeds allocation."
date: 2026-07-25T00:00:00.000Z
updated: 2026-07-25T00:00:00.000Z
topics: ["venture-capital"]
source: https://venturecapitaltracker.com/glossary/waterfall-chart
---

# What Is Waterfall Chart?

> A waterfall chart is a visual that shows how a starting value changes through sequential additions and subtractions — common in finance for revenue bridges, fund returns, and exit proceeds allocation.

**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](/glossary/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](/glossary/waterfall), [liquidation waterfall](/glossary/liquidation-waterfall), and ARR bridge reporting.

## FAQ

### What is a waterfall chart in simple terms?

It is a bar chart where each step shows what increased or decreased the total — like starting ARR, plus new sales, minus churn, ending at current ARR. Floating bars connect the steps visually.

### Why does a waterfall chart matter?

For founders, it clarifies revenue or cash bridges in board meetings. For investors, exit waterfall charts show how much reaches common after debt and preferred at each sale price.


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Source: https://venturecapitaltracker.com/glossary/waterfall-chart