Management Incentive Plan (MIP)

A structured strategy developed by private equity firms or management teams to systematically increase the value of a business over a defined holding period. Value creation plans typically address revenue growth, margin improvement, operational efficiency, and intangible asset development.

A transaction in which a company's existing management team acquires the business, often with financial backing from private equity or debt providers. MBOs are a common succession and exit route, particularly for founder-led or family-owned businesses.

The processes, governance, policies, and technology used to ensure that an organisation's critical shared data entities — such as customers, products, suppliers, and accounts — are accurate, consistent, and controlled across all systems and business units. MDM creates a single trusted source of master data, reducing duplication, resolving conflicts, and enabling reliable reporting and analytics.

An annual fee charged by a fund manager (general partner) to cover operational costs, typically calculated as 1.5% to 2.5% of committed capital during the investment period and assets under management thereafter. Management fees are separate from carried interest.

The share of investment profits that a fund manager (general partner) receives as performance-based compensation, typically 20% of profits above a hurdle rate. Carry is the primary financial incentive for venture capital and private equity fund managers.

A contractual feature that gives an investor the right to share in additional value creation beyond a base return, commonly found in preferred equity and mezzanine instruments. Upside participation structures are designed to reward investors for the risk associated with backing intangible-driven growth, aligning their interests with the company's long-term value creation.

A detailed register of a company's equity ownership structure showing all shareholders, their percentage ownership, share classes, options, warrants, and the dilutive effect of each financing round. A clean cap table is essential for fundraising and exit readiness.

A separate legal entity created for a specific financial purpose, such as isolating risk, holding assets, or facilitating a particular investment. SPVs are commonly used in venture capital for individual deal syndication and in private equity for structuring leveraged acquisitions.

Management incentive plan guide: sweet equity, ratchets and tax

How a private equity MIP is built, a worked exit waterfall with and without a ratchet, the alternatives and the UK tax.

What is the typical equity split between co-founders of a startup?

There is no single 'correct' split — common approaches include equal splits for equal commitment, or weighted splits based on idea origination, capital contribution, full-time commitment, and domain expertise, always with vesting.

How should founders structure and maintain their cap table?

A well-structured cap table tracks all equity ownership, options, convertible instruments, and vesting schedules on a fully diluted basis — founders should maintain it from day one using dedicated software.

Management buyout vs management buy-in — what's the difference?

In a management buyout (MBO) the existing team buys the business it already runs; in a management buy-in (MBI) an external team buys it and takes over running it.