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How are you supposed to model the performance bonus for searchers in a returns waterfall?
Does it essentially require setting up a circular reference? For instance, if you have a standard structure of 30% equity to the searchers—10% at acquisition, 10% vested over time, and 10% performance bonus earned ratably as the IRR to the original investors increases from 20% to 30%. Would you set up a circular reference that calculates the returns to the seed capital and then adjusts the performance bonus based on the resulting IRR?
If not, how would you calculate it?
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