Investor Pay Back: Member and Sponsor Equity

[Daniel G.]

Hi BP community,

I have been trying to figure out how the investor cash out process works in the case of a liquidation event such as a refi or sale. What happens after you pay members back their original equity investment through cash flow and proceeds from the event? Would the sponsor gain ownership of the members equity after they have been paid back?

I know that it is common to find deal packages that say investors have the option of getting cashed out of their investment between year 4 and 5 at 90% of fair market value of their shares. But I am not too certain of what that does to the sponsors equity.

I guess what I am asking is, could you please explain the liquidation event, cashing out of investors as well as the consequences that it has on sponsor and member equity in greater detail?

I would greatly appreciate this,
Daniel