A great way to plan and present your plan to redeem/pay back the investment is via a liquidity waterfall. A liquidity waterfall looks at how the liquidity of the company is used to redeem the investment over time. Here, different preferences can also be taken into account, e.g. investors from different financing rounds that have a preference for each other. Relevant points in time are often the point at which the initial investment is paid back, other relevant factors are the parameters of redemption (e.g. percentage of profits/revenues or fixed payments) and the distribution of one payment amongst different groups of investors and stakeholders (e.g. 70% used for redemption of investment, 10% used for founder compensation).
A liquidity waterfall can either be designed as a first draft with different rough phases or already with more detail and specific timings.
Note: This is an excerpt from a case study on Organically Grown Company. The full version can be read here.
OGC’s waterfall model: embedding purpose into financial flows
Making the waterfall work in practice required substantial capital and a carefully staged process. First, RSF Social Finance provided debt to buy back ESOP shares, consolidating 51% of the company under the SFA PPT. Next, Purpose Evergreen Capital (PEC) and Candide Group supplied patient, non-voting preferred equity to buy out the remaining farmer-owners. All three investors accepted capped returns and long-term horizons, reflecting alignment with OGC’s mission.
“Our challenge as preferred equity investors was to design an equity investment in a context where an ‘exit’ is off the table, and where purpose is explicitly being placed ahead of investor returns,” said Aner-Ben Ami of Candide Group.
Today, the waterfall model stands at the heart of OGC’s financing structure:
First, all operational costs and debt obligations are covered.
Next, preferred investors receive cumulative, capped dividends.
After these obligations, remaining profits are allocated to employees, farmers, and community initiatives.
The model includes a tiered system for surplus allocation: 60% of additional profits beyond base allocations are distributed among stakeholder groups until investors reach a predefined dividend threshold, after which 80% of further profits flow to stakeholders. By explicitly defining the order, conditions, and caps for distributions, OGC created a transparent and purpose-aligned system.
“So this ensures that financial flows reinforce the company’s purpose, supporting employees, farmers, investors, and community initiatives in alignment with OGC’s long-term mission. It really is a full circle design. It is a system, a feedback system, and it’s exciting to be a part of.” - Brenna Davis, CEO of OGC
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