What is Rollover Equity?
The Short Answer
Rollover Equity explained simply
Rollover equity happens when you sell your business, but instead of taking all cash, you keep some ownership in the new company. This usually means you sell most of your business to a buyer, like a private equity firm, and then reinvest a part of your sale money back into the new, larger business. You become a shareholder in the combined entity, often alongside the new owners.
Real-World Example
The Tech Startup Sale
Imagine Sarah owns a successful tech startup. A larger company offers to buy it for $10 million. Instead of taking all $10 million in cash, Sarah agrees to take $8 million in cash and reinvest $2 million back into the acquiring company. This $2 million is her rollover equity. She now owns a small percentage of the larger company and benefits if its value grows.
Why this matters
Rollover equity lets you cash out a big part of your business while still having a stake in its future success. It can give you another chance to make money if the new company grows. It also shows the buyer you believe in the deal, which can make the sale smoother.
Rollover equity can be a smart move if you believe in the buyer and their plan. It gives you a second bite at the apple, but also ties your future to theirs. Make sure you understand the terms and your new role.
Rollover equity can be a smart move if you believe in the buyer and their plan. It gives you a second bite at the apple, but also ties your future to theirs. Make sure you understand the terms and your new role.
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