A majority recapitalization is one of the most common ways founders partner with private equity. The founder sells a majority stake, takes meaningful liquidity, and keeps a minority stake so they share in the company’s future growth, often called a “second bite of the apple.”
How it works
In a typical structure, a private equity firm acquires more than 50 percent of the company. The founder receives cash at closing for the shares sold and rolls the remaining equity into the new ownership structure. The company may also receive growth capital, and management may receive equity incentives so the team shares in the upside.
Why founders choose it
- Diversification: convert part of a concentrated personal asset into cash.
- Continued upside: keep a stake in a business that is now better capitalized.
- Support to grow: access capital, systems and experience for new locations, services or acquisitions.
- A path to succession: build the team that will eventually lead without you, on your timeline.
What changes and what does not
With a majority partner, major decisions such as acquisitions, large capital spending and senior hires are usually made with a board. Day-to-day leadership often stays with the founder. The best partnerships are explicit about this before closing.
Questions to ask a potential partner
- How long do you expect to own the business, and what happens at the next transaction?
- What decisions will need board approval?
- How will my rolled equity be treated relative to yours?
- What support will you actually provide after closing?
- Can I speak with founders you have partnered with?
At KVLR Capital, founders typically keep a meaningful stake and continue to lead the business for five to seven years. See our investment criteria.