In a conversation with another searcher recently int became clear that we had different assumptions about the mechanics of equity payout on exit in a typical deal.

I understood that the return of principal and 20% hurdle to investors were senior to all of the operator’s equity, even if vested… such that in a return scenario where investor IRR<20%, equity payout to the operator was 0. His understanding was that the initial and time based portions of operator equity were in the same tranche as the preferred, so even if investors got a small or negative return, the operator still made some money on their equity.

Can anyone enlighten me?