IRR Vs Cash on Cash Hurdles for Equity

by a searcher

7 years ago

How practical (or commonplace) is it to structure the search fund principals’ equity based on cash on cash return as against IRR hurdles? I think this aligns the incentives much better instead of IRR hurdles (I would want to exit sooner with an IRR option relative to cash on cash option). 

11 likes
260 views
3 comments

searcher from University of Kentucky

Also, what David above is saying is what @Tom Matlock has written elsewhere. But, in the market, most of the co-investments from non-search fund institutional investors are doing hurdle waterfalls based on a combination IRR and cash-on-cash as opposed to doing IRR hurdles during the first few years, and then cash-on-cash in the later year. All the best!

7 years ago | like reply | 0 likes

searcher from University of Kentucky

Hi Arun: I am seeing a combination for deals that take a long-term view -- a base hurdle between 8-10% compounded annually for the life of the investment, and then the hurdles are based on cash-on-cash. Hope this helps. All the best!

7 years ago | like reply | 0 likes

More on Searchfunder

Just Closed on My First Deal! Reflections and Takeaways for other Searchers

45,152 transactions are available on Searchfunder (now searchable by keyword)

Now everyone has unlimited IBISWorld access

Family office looking for traditional searchers

2 Best Ways To Find Motivated Sellers, Off-Market Deals

Downsides of "buying a job" below 750k+ EBITDA?

Examples of self-funded searcher websites

6-7x for a Self-funded Search Deal?

Searchfunder is an online community and toolkit for searchfunds. Over 80% of those involved in searchfunds maintain a Searchfunder.com account to help them network, problem solve challenges, and keep up with the industry.

We maintain partnerships with database providers that make searching more effective, efficient and affordable along with features that help searchers find deals and investors and vice versa.