How do self-funded equity distributions work?

searcher profile

August 17, 2024

by a searcher from University of Florida in Virginia, USA

Hi all,

I’ve reviewed a-lot of content on equity distributions on this platform, watched live oak’s webinar, and looked at other resources but I’m still having trouble understanding exactly how equity distributions work.

I think a concrete example would help. Can someone please breakdown how distributions would typically work using these simple, illustrative parameters?

- Total equity investment: $500k, of which $100k is invested by searcher. All of this is treated as preferred equity with a 10% annual coupon
- Investors require 30% IRR over 5 years
- Searcher has 70% common equity
- Annual cash available for distribution after debt payment is $500k

redacted
1
7
281
Replies
7
commentor profile
Reply by a searcher
from The University of North Carolina at Chapel Hill in Atlanta, GA, USA
Is the confusion with the preferred? The preferred gets paid back before the common (both your investment and the investors' investment) either before exit or at exit. If you pay the preferred prior to exit, there are no more distributions from the common, unless you and your investor group elect to take dividends. Sorry if this is over explaining.
commentor profile
Reply by a searcher
from Columbia University in Washington, DC, USA
I recommend watching the acquiring minds webinar on LBOs
commentor profile
+5 more replies.
Join the discussion