The real math
Most versions of a PE deal are designed to work against you.
PE firms offer 60%, 80%, or 100% buyouts. The headline number changes. The outcome doesn't. Here's how each one actually works.
Founder exit answer
Is Tiny a better alternative to private equity?
Tiny can be a better fit than private equity for founders who want a simpler cash-heavy exit, fewer deal mechanics, and a long-term home for the business. Private equity can maximize headline price, but rollover equity, earn-outs, escrows, leverage, and fund timelines often change the founder's real outcome.
- Tiny usually uses simple cash-heavy structures and does not require founders to roll equity.
- Tiny keeps teams, brands, and operating rhythms intact after closing.
- Tiny holds for the long term instead of buying around a fund resale clock.
Before the math: the process
First you talk to an analyst. Then their VP. Then a principal. Then, maybe, a partner. PE firms typically evaluate dozens of companies for every deal they close, roughly 80:1 by recent industry surveys. You are one of 80.
If you survive the filter, expect 5–10 meetings over 2–3 months before you see a term sheet. Then the real work starts.
Due diligence takes 60–90 days. They want every financial statement, every customer contract, every employee agreement, every cap table entry. It's the equivalent of a second full-time job for 2-3 months: 15-30 hours a week on top of running your business.
And after all that? Roughly 1 in 4 deals still die after the LOI is signed (per industry surveys). If yours dies, you've still paid lawyers, accountants, and advisors for months of work, often six figures on smaller deals and far more on larger ones, and lost a quarter of your year. The PE firm moves on to deal #81.
~80:1
Companies evaluated per deal closed
~25%
Of signed LOIs never close
~6 mo
Average time from first call to close
6 figures+
Deal costs if the LOI falls through
Then comes the retrade
A meaningful share of PE deals see a price adjustment during diligence. The buyer bids at the top of their range knowing they'll use findings to negotiate down. The retrade typically comes 60-90 days in, when you're emotionally committed and have already spent real money on lawyers, accountants, and advisors.
A 1% variance in a single month. An accrual timing difference. A customer who churned during diligence. The exhaustion wasn't a side effect. It was the strategy.
The 60% buyout (the most common structure)
At the cocktail party, you say “I sold my company for $26 million.” People nod. It sounds like a life-changing number. What you don't mention is that PE bought 60% and you “rolled” the other 40% back in as equity. You walked away with $15.6M before tax, and the remaining $10.4M is trapped in a structure designed to make sure you never see most of it.
Here's what happens to your 40%:
2x liquidation preference
PE's shares are senior preferred. In any exit, they get paid back double before you see a dollar on your rolled equity. If the company sells for less than 2x PE's investment, you get nothing on that 40%.
8% annual preferred return
On top of the 2x preference, PE accrues an 8% annual return on their invested capital. This compounds. After a 5-year hold, they're owed roughly 1.47x their investment before your equity participates, on top of the 2x pref.
Participating preferred (“double dip”)
After getting their preference back, PE also participates pro-rata in the remaining proceeds. This reduces your share by 30-40% compared to what you'd expect from a simple 40% ownership stake.
Monitoring fees
PE charges the company $250K–$2M per year in “monitoring fees” for the privilege of being owned by them. You bear 40% of the cost. PE gets 100% of the revenue.
Dividend recaps
PE loads debt onto your company and pays itself a dividend. Dividend recaps surged through 2024. By some industry trackers they accounted for roughly 40% of US leveraged-loan issuance in early 2024 (PitchBook LCD). The company takes on the risk. PE takes out the cash.
Net result: your 40% is worth roughly 20-25% in real economic terms. The headline said you kept $10.4M in equity. The math says it's worth $5-6M, if you're lucky.
The 80% buyout
Everything from the 60% deal gets worse. Plus new mechanisms appear that didn't exist when you had 40%.
Zero governance
At 20%, you lose all board seats. Your shares become non-voting. PE makes every material decision (hiring, firing, budgets, strategy, and when to sell) without your input.
Employment coupling
Your rolled equity is tied to continued employment. If you leave or get fired, the company can repurchase your shares at book value or a discount. Your 20% becomes a golden leash, not an asset.
Preferred return hurdle
PE sets an 8% preferred return. Your 20% doesn't participate in any exit proceeds until PE clears that hurdle plus a catch-up provision. On a 5-year hold, PE needs to earn roughly 1.47x before you see a dollar.
Forced redemption
PE has redemption rights. They can force a buyback of your shares after 5-7 years at a formula price they set. If the company hasn't been sold by then, PE decides what your shares are worth.
Net result: your 20% is worth roughly 5-10% of actual exit proceeds. You gave up control. You're locked into employment. And the number you were promised has two or three trap doors between you and the cash.
The 100% buyout
PE almost never buys 100% of a founder-owned business. It's not their model. They want you to have “skin in the game” so you're motivated to hit their targets. But when they do offer 100%, the headline number is fiction.
Here's what a “$20M all-cash buyout” from PE actually looks like:
Earnouts: 15-50% of the price is deferred
You don't get $20M. You get $10-17M at close, with the rest tied to performance targets over 2-3 years. Targets that the new owner, not you, now controls. Research and practitioner commentary consistently suggest most earn-outs underperform, and a sizeable share pay nothing at all.
Escrow holdbacks: 5-10% locked up
$1-2M sits in escrow for 12-18 months in case anything goes wrong. The majority of deals under $100M include an escrow holdback. Recent SRS Acquiom studies have put the share around 70%. It's your money being used as insurance against claims on your representations.
Working capital adjustments: 2-5% haircut
The buyer sets a “target” working capital level. If the business is below it at close (which they'll argue it is) you owe the difference. This is negotiated after the headline price is set.
R&W indemnification: up to 10% at risk
Your representations and warranties survive closing for 12-18 months (longer for “fundamental” reps). Up to 10% of the deal value can be clawed back if the buyer finds anything you didn't disclose, or claims you didn't.
Earn-out subordination
Even if you hit your earn-out targets, payment can be blocked if the company's loan covenants are breached. PE loads debt onto the company at close. The debt gets paid before your earn-out does.
Net result: a “$20M buyout” delivers roughly $12-15M at close, with another $3-5M you'll probably never see. After tax, a founder walks away with about $8-10M in hand on a $20M headline.
Run the numbers yourself
Slide to your company's value. Toggle between PE deal structures. Compare to what you'd get from us.
You walk away with $7.8M more by selling to us.
Simple, cash-heavy structures. No strings.
The PE offer (60% buyout)
Often a higher valuation that looks great on a term sheet
You roll 40% equity. PE has a 2x liquidation preference and 8% annual preferred return
10% of cash deferred, tied to targets PE sets after closing
Locked for 12-18 months against reps & warranties claims
6+ months of lawyers, accountants, and diligence
1-2% fee charged to your company at closing
Up-front cash in your pocket
$12.1M(46.5% of headline in up-front cash)
Money you might never see
Once PE controls the company, they control hiring, spending, and strategy, all of which determine whether you hit your targets. Your rolled equity ($10.4M face) is realistically worth $5.7M after the 2x pref and 8% hurdle.
Our offer
15-page agreement, not 150
Cash in your pocket
$19.9M(99.5% of offer in cash at close)
Same valuation. Usually cash-heavy. Close on a timeline that fits the business. Earn-outs are rare, short and milestone-based when used. No escrow games, no preferences.
Or you could just sell to us.
A fair offer through a straightforward process, usually with a simple cash-heavy structure. We close on a timeline that fits the business. Earn-outs are rare. When we use one, it's short, tied to clear milestones, and never designed to claw back the price. No escrow, no liquidation preferences, no preferred returns, no monitoring fees, no dividend recaps.
We've bought dozens of companies this way. We don't run founders through a 90-day diligence process or change the price at the last minute.
Sources & References
The figures below underpin the specific statistics referenced in this article. Where a precise published source is not available, we use qualitative framing in the body text rather than a hard number. Readers should consult the original sources for full context.
- PE deal-evaluation funnel (~80:1).Bain & Company, Global Private Equity Report (annual editions); see also Cambridge Associates and Preqin sponsor surveys.
- ~25% of signed LOIs never close. SRS Acquiom M&A Deal Terms Study; BVR / Pratt's Stats historical break-rate data.
- Escrow holdbacks in ~70% of sub-$100M deals. SRS Acquiom M&A Deal Terms Study (most recent edition).
- Earnout underperformance. SRS Acquiom and American Bar Association Private Target Mergers & Acquisitions Deal Points Study both consistently report that the majority of earn-outs pay less than the maximum, with a meaningful share paying nothing.
- Dividend recaps share of leveraged-loan issuance. PitchBook LCD, US leveraged-loan market updates (2024).
- 2x liquidation preferences, 8% preferred returns, participating preferred, monitoring fees, R&W coverage. Industry-standard structures described in NVCA model legal documents, ABA Private Target Deal Points Studies, and standard PE practitioner texts (e.g., Rosenbaum & Pearl, Investment Banking).
Specific founder-outcome figures (e.g., “$15.6M before tax,” “$5-6M in real economic terms”) are illustrative scenarios, not historical averages. Actual outcomes depend on deal-specific terms.
If this resonates and you’d rather not run a PE process, we’d love to talk. We’ve bought 21 businesses and still own them today. For a deeper look at how we differ from PE, see the alternative-to-PE breakdown.