The Second Bite at the Apple
What really happens when PE-backed execs stay on post-exit
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Everyone celebrates the big exit.
But what if the exit isn’t your end?
What if you’re expected to stick around for another run?
Welcome to the “second bite.”
For private equity-backed executives, a liquidity event often isn't the final chapter—it’s halftime. When your company is sold to another PE fund or strategic acquirer, and you stay on in your role, you're not cashing out completely. You're reinvesting, re-upping, and recommitting.
This second act can be extremely lucrative—or quietly painful—depending on how the terms shake out.
Let’s break down how it works, what to watch out for, and what kind of comp packages typically come with a second bite.
The Setup: First Exit, but Not Your Last
Imagine you're the CFO of a PE-backed SaaS company. Over the last 4 years, you've driven operational efficiency, improved gross margins, and doubled EBITDA. The business is sold for $800M, 3x what the prior PE firm paid.
You've earned your stripes—and some equity. Let’s say:
You own 1.5% of the company (vested)
The PE firm offers you a partial cash-out + rollover
You get to sell 50% of your stake = ~$6M
The remaining 50% ($6M) is rolled into the new entity
Now, you’re still in the game—but under a new playbook.
Rolling Equity: What Actually Happens
When your company sells and you’re invited to stay on, you’ll likely be asked to roll a portion of your equity into the new entity. This is where the second bite begins—and where it can go very right or very wrong.
📌 Does your equity re-vest?
Short answer: Usually not.
But here’s where it gets nuanced—and potentially risky.
Your rolled equity is generally considered already earned, so it doesn't restart a traditional 4-year time-based vest. That said, it's now part of a new ownership structure with a new PE sponsor, new capital stack, and new exit strategy.
You're not vesting, but you're still exposed to the terms of the new deal:
Hurdle rates: PE firms often aim for a specific IRR (e.g., 20%) before management gets a meaningful share of the upside.
Liquidation preferences: Preferred equity holders get paid before common—if that pref stack gets thicker, your upside shrinks.
Catch-up mechanics or waterfalls: How proceeds are distributed matters. A "double dip" structure could mean you’re waiting longer to see your share.
Drag-along clauses: You may be forced to sell under unfavorable conditions if the sponsor exits early or below target.
🧠 Tip: Ask for the post-money cap table, shareholder agreement, and the exit waterfall model. These tell you who’s getting what when the business sells again.
If they push back on showing you the model, consider that a red flag. You're investing real money—treat it like an LP would.
🧮 How much do execs typically roll?
It depends on your level and leverage, but here are some rough ranges:
CFOs: 30–60% of vested equity
CEOs: 50–80%, often more due to alignment optics
Other C-suite execs: 20–50%, depending on perceived retention risk
Non Execs: 20% or less
Sometimes this is negotiable. Other times, it’s a “take it or leave it” requirement to remain in your role post-transaction.
🧠 Smart question to ask: “If I choose not to roll, what does that mean for my future here?” (And be ready for some political honesty.)
🪜 What About “Top-Ups”?
In most PE-to-PE deals, rolled equity is only part of your post-transaction ownership story. Many executives are also granted fresh equity in the new entity—commonly referred to as a top-up.
Top-ups serve two purposes:
To re-incentivize management for the next hold period
To bridge any dilution or lost upside from terms of the rollover
Here’s how they typically work:
Size: Depends on role, but often ranges from 0.25%–1.0% for CFOs and other CxOs. CEOs may receive 2–5%.
Vesting: Usually restarts—4-year vesting, sometimes with a 1-year cliff or performance-based triggers.
Terms: This new equity often has different economics (e.g., lower strike price, pref hurdles, MIP-style payouts).
🧠 Ask whether your top-up is:
On top of your rollover, or offsetting part of it
Structured as true equity or synthetic equity
Subject to the same liquidity and exit rules as rolled equity
A well-structured top-up can give you meaningful upside and align you with the new sponsor’s value creation plan. A poorly structured one? Just another golden handcuff with limited juice.
🔄 Is it a Straight Rollover?
Not necessarily. While the term “roll equity” sounds simple—just keep part of your old stake in the new entity—it can get structurally complex. And the choices you make here can have meaningful implications on both upside and risk.
Here’s what execs should understand:
🔁 1. Converted Equity (Old Shares → New Shares)
In many deals, your existing equity is converted into shares of the new entity. But...
You may not be getting the same class of stock.
You might go from holding common shares to preferred (or vice versa).
Preferred shares may have better protection—but they may also come with a higher liquidation preference that favors the sponsor.
New agreements may reset terms:
Voting rights
Tag/drag-along rights
Exit participation rights
Restrictions on transfers or secondary sales
What to ask:
“Will my new equity have the same rights and preferences as my previous stake?”
💸 2. Cash-Out + Reinvest (Roll via Liquidity Event)
In other cases, your old equity is cashed out in full, and you’re invited (or required) to reinvest a portion of your proceeds into the new deal.
You’ll write a personal check (or wire) into the newco’s cap table
You’re treated more like an LP or co-investor
This is technically a new investment—not just continued ownership
This is where things start to feel like PE firms treating execs like limited partners. It’s a higher bar—and potentially higher return—but you're making a fresh bet on a new valuation and set of terms.
What to ask:
“Is this considered a rollover or a new investment? And am I investing pre-tax or post-tax proceeds?”
The pre vs post tax difference is huge. You’d rather invest pre tax so you aren’t taxed on the way out of the initial sale. I’ve seen companies gross employees up for the amount they get taxed before they have to reinvest on the roll, but that’s on very employee friendly terms.
🎯 3. Performance-Based or Synthetic Equity
Sometimes, rather than rolling equity into the newco, you’ll be given a synthetic version of ownership. That might look like:
SARs (Stock Appreciation Rights) – you get paid the upside at a future exit, without owning shares
Phantom Stock – tracks the value of real equity but is paid out in cash
Contingent Equity – ownership that only materializes if performance targets are hit (e.g., revenue CAGR, margin expansion, exit multiple)
These are designed to motivate without diluting the new sponsor’s cap table. But they come with tradeoffs:
No voting rights
No early liquidity
Usually taxable as compensation, not capital gains
What to ask:
“Is this equity or cash comp? How is it taxed? And when does it pay out?”
🎛️ 4. Choose-Your-Own-Adventure: More Cash or More Roll
Some sponsors offer execs a mix-and-match option at the time of the deal:
Take more cash up front (and walk away clean)
Roll a larger stake and ride into the next fund with bigger upside potential
This is where your personal situation, risk appetite, and belief in the new PE firm’s vision come into play. More roll = more skin in the game—but also more illiquidity, more risk, and often, more scrutiny.
What to ask yourself:
Do I believe in the new sponsor’s thesis?
How long am I willing to wait for another exit?
Am I comfortable putting more chips on this same company—or do I want to diversify?
And to call out the elephant in the room: Part of this may be a test. If you choose to not roll, they may judge your commitment (right, wrong, or indifferent).
Bottom line:
Rolling equity isn’t always a simple extension of your existing stake. It’s a negotiation—with implications for how you're taxed, how you’re incentivized, and how you’ll participate in the next win.
Don’t just ask what you’re rolling. Ask how, into what, and under what terms.
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Really excellent overview. Congrats!
Brilliant, CJ. A deeper understanding of PE equity than many PE GPs have. In my few PE experiences (second bites) I could never fully figure out the equity upside. It left me wondering if the only people who are consistently making money in PE are the GPs.