Co-investor economics are governed by the LP agreement. Standard structures across the lower middle market look like this.
At closing
Co-investors fund their pro-rata share of equity. Transaction fees of two to four percent are paid to the sponsor from the equity raise.
During the hold
Management fees are usually paid by the portfolio company, not by investors directly. Quarterly reporting is standard.
At exit
Investors receive return of capital, then an 8 percent compounded preferred return, then split remaining profit 70 to 80 percent to investors, 20 to 30 percent to the sponsor as promote.
Net IRR
On a successful five-year deal, net IRR to co-investors typically lands three to five points below gross. Fee drag is real but manageable when the sponsor delivers.
If you are evaluating a transaction in this space and want a candid second look, Solender Capital is happy to compare notes. Reach out through our contact page and share what you are working on.