Traditional Search & Seller Rollover Equity

searcher profile

February 26, 2026

by a searcher from Northwestern University - Kellogg School of Management in Chicago, IL, USA

Hi, Quick modeling question. In a structure where the seller rolls 10% preferred equity, is that 10% applied before or after carry? For example, If I hit my 25% carry hurdle, does the seller’s stake become 10% of the remaining 75% (i.e., 7.5%), or do they keep a full 10% of total equity?
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Reply by a searcher
from Northwestern University in Houston, TX, USA
It's still 10% of the preferred equity (so they would get that back + PIK upon exit), but the common equity upside beyond that would be diluted by your carry.
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Reply by an investor
from Columbia University in Fairfax, VA, USA
It depends on your structure, but typically, what ^redacted‌ said is correct. You'll have two pools of equity (Preferred and Common Equity). Preferred will convert to Common pro-rata, which means your Promote (which will be Common Equity) will get diluted upon that conversion.
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