How to calculate returns for a minority investment?
Hey guys
Have to model this out for a deck...can someone walk me through how to do this? private company, stake is about 30%, would you just do a cash flow model, determine the exit multiple, and calculate your implied exit equity and see what the IRR and MOIC is? Silver banana for your thoughts =)
First set of questions are:
Who gets equity first in a payout situation / are their promote payouts? Is your 30% equity stake getting a bonus at a certain IRR / cash on cash or is it paid out after debt, or other investors in a downside case?
Also, is this a buyout situation with several funds involved? Are you footing 30% of the equity bill or the whole thing?
Think the best way to do this is to separate out the 30% of equity from the rest in sources, and then do IRR calculations with 30% at exit. There can be some wrinkles here depending on if you have to worry about debt, or if there's a waterfall return, or something else weird.
But basically I think your intuition is right.
Thanks for your reply. No this is just a simple minority investment, fund is interested in investing a minority stake in the company and wants to see the possible returns with some assumptions they made on growth of company, I have some preliminary company financials and company want to see the returns for a 30% stake..was not given any info on the equity payout structure
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