The Private Equity Playbook

are several key questions to ask:
What is the model for investment? The private equity firm should be able to spell out what specifically they are going to do over a three- to seven-year period to increase the value of the company and when they hope to sell it. Whenever this liquidity event takes place, every three to seven years, there will be a payday.
What is the equity structure? Explain to me what I get at your different levels of return that you’ve modeled.
Do you have a preferred yield on equity investments?
Do you charge management fees that are paid by the company?
Ask for specific examples at different return levels. “Show me your base case, upside case, and downside case.” All firms typically model three cases: the base case, a scenario if there is a home run, and a scenario for if something goes wrong.

with Class A shares valued at $1,000 a share, so in this case, there would be 10,000 shares of Class A stock issued

it costs $10 million of equity to buy a company, then there will be Class A shares issued that equal $10 million—every company I have seen starts out

Based on what we have learned already, here are some insightful questions that you (Josh) can ask the private equity firm:
How have your previous funds performed?
What has your typical IRR been at the fund level?
What has been the typical MOIC at the fund level?
Have your funds historically been top quartile?
What have your typical results been when you’ve purchased companies or partnered with people like me?
What has been your typical IRR for similar companies?
What has your typical MOIC been for similar companies?
Will you consider allowing me to make a rollover investment?
Can you walk me through your investment model for my company and show me how my rollover investment performs if you hit your assumptions?
Give me examples of companies similar to this. How did they perform? Are there any lessons learned?
Can you tell me about the average tenure of your employees at the various

ased on what we have learned already, here are some insightful questions that you (Josh) can ask the private equity firm:
How have your previous funds performed?
What has your typical IRR been at the fund level?
What has been the typical MOIC at the fund level?
Have your funds historically been top quartile?
What have your typical results been when you’ve purchased companies or partnered with people like me?
What has been your typical IRR for similar companies?
What has your typical MOIC been for similar companies?
Will you consider allowing me to make a rollover investment?
Can you walk me through your investment model for my company and show me how my rollover investment performs if you hit your assumptions?
Give me examples of companies similar to this. How did they perform? Are there any lessons learned?
Can you tell me about the average tenure of your employees at the various

Distributions to Paid in Capital

Multiple on Invested Capital

Internal Rate of Return