Rollover equity explained

Rollover equity is common in private equity and growth-capital deals. Instead of taking all the consideration in cash, a founder or seller reinvests part of the proceeds into the buyer or a new holding structure. It keeps you aligned with the buyer — but what you actually receive depends on the detail.

What determines the value

• Purpose. Rollover aligns founders and management with the buyer and lets them share in future upside.
• Instrument. The equity might be ordinary shares, growth shares, preference shares, loan notes or another class — each with very different economics.
• Ranking. Value depends on the exit waterfall and how the investor’s instruments rank ahead of management.
• Control. Holding rollover equity does not necessarily come with meaningful governance rights.
• Exit. Drag rights, leaver terms, dilution and future funding can all change the eventual proceeds.

A short checklist

• Identify exactly what instrument you are receiving.
• Model the exit proceeds under realistic scenarios.
• Check where you rank against institutional and preference instruments.
• Read the leaver and drag provisions carefully.
• Take tax advice before committing to the structure.

Common traps

• Treating a percentage of ownership as if it were economic value.
• Ignoring liquidation preferences.
• Not knowing where management sits in the waterfall.
• Accepting harsh leaver terms after rolling the proceeds.

We advise founders and management teams on rollover equity, so you understand both what you are receiving and what you are giving up.