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Correct, you need to assign a value at recapitalization, net the outstanding debt to find implied equity value (100% share), and run the hypothetical liquidation through the venture waterfall to compute LP and GP equity positions.
The LP equity position represents the funding commitment. If you want it to be easy, you can assume the new equity comes in at the same valuation, so while there’s an outflow, there’s an equal inflow. In this situation, there’s no additional commitments from or distributions to the GP, but you’re at a higher ownership share since you’re rolling the promote into equity (if the promote was in the money at recap.).
A slightly more complicated structure might be to assume you recapitalize the new equity at your original capitalization %. You’d be paid out the promote value associated with the valuation at recap., but you’d keep your original pro-rata share in the deal. If you think there’s not a lot of meat left on the bone, then it may make sense to model it this way to, colloquially, take chips off the table.
From a modeling perspective, it’s probably easiest to have two models, then append the two sets of CFs to look at the total investment.
Literally nothing is different other than the waterfall on the new proposed structure. On the GP side you’re basically just “re-buying” the deal with a new partner. On the LP side biggest sensitivities are the waterfall terms, control provisions, and price since there are shared economics. If no pricing discount would rather just buy it outright and not pay promote. Hate marketed recaps as you get squeezed on both price/cap rate and waterfall. Outside of numbers, typically want to see a good story with a GP actually adding value in day to day operations and having other deals in the pipeline to scale and build a relationship
Edit: Misread the OPs post as the hypothetical new LPs modeling coming into the deal
Is this for a modelling test for a secondaries role for example, or is it an actual situation you’re dealing with?
I’d be surprised if a firm tested this scenario for a junior position, but it’s never bad to be prepared for advanced problems.
If I were a betting man, this is an issue OP is dealing with live.
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