Exit is the only thing that matters for an LP's return. A PE deal that compounds 25% IRR for 4 years and exits at 1x preference because the market closed is not a 25% IRR deal — it is a zero. Choosing the exit route, and the exit timing, is the most consequential strategic decision in any portfolio company's life.
Strategic acquirer
An operating company buys for synergies and capability — typically the highest-priced exit, because the strategic can pay above standalone DCF based on cost synergies and revenue synergies. The downside: strategic buyers move slower, are more selective, and often want a clean integration (which can mean management departures and culture loss).
When to pursue: when there is a credible strategic with a synergy story; when the company has a capability the strategic cannot build organically; when the deal team can run a process narrow enough to attract strategics without it becoming a public auction.
Sponsor-to-sponsor
Selling the company to another PE firm. The dominant exit route in many vintages: roughly 30% of buyout exits in 2024 were sponsor-to-sponsor. The next sponsor is paying for the next leg of value creation; the price reflects what they think they can do, not what the strategic synergy is. Process speed and certainty are the advantages.
IPO
Listing the company on a public exchange. Pricing on the basis of public-comparable multiples; sponsor remains a major shareholder through lockup (typically 180 days) and beyond. Best executed when public-market multiples are favourable, the company has the scale and reporting maturity for public-life, and the lockup overhang is something the market will absorb. Chapter 31 walks the process.
Dividend recapitalisation
Distributing cash to equity holders by issuing new debt against the portfolio company. A partial monetisation that does not exit the position. Used when the company can support more leverage than at acquisition, exit windows are closed, and the GP wants to return cash to LPs. The new debt re-clocks the leverage profile and re-positions for a future exit.
SPV mechanics for partial exits and direct co-investment
A Special Purpose Vehicle (SPV) is a single-purpose legal entity — typically a Delaware LLC — formed to hold a single investment. In the late-stage and co-investment context, the SPV is the dominant wrapper for allowing LPs or third-party investors to concentrate exposure into one portfolio company without joining the main fund. The two most widely used administration platforms are AngelList Stack and Sydecar, each of which automates the SPV formation, subscription, and K-1 generation workflow. Lead economics are typically 10–20% carry on the SPV (with 20% being common for high-conviction leads) and an administration fee of 0.5–2% of committed capital, paid once at close. LPs participating in an SPV accept concentrated single-name exposure in exchange for the right to size up beyond their pro-rata in the main fund.
SPVs are increasingly used as a partial-exit tool when a fund needs to show distributions per invested capital (DPI) but a portfolio company is not ready for a full sale. The GP sells a portion of the fund's position into a newly formed SPV — either to existing LPs at a negotiated price or to a secondary buyer — generating cash distributions to the main fund while retaining upside through the remaining position. This structure is also used in continuation vehicles (Chapter 33), but at the individual SPV level it is simpler: the main fund receives cash, the SPV holder receives the residual equity, and both parties have consented to a valuation that cleared in a market process.
Two conflict-of-interest watchpoints govern SPV use at institutional-quality managers. First, cross-fund SPVs: when a GP uses a separately capitalized SPV to invest alongside a fund into the same company, the GP must manage the allocation between vehicles carefully — any pricing difference between the SPV and the fund entry is a conflict that LPAC review should catch. Second, GP-affiliate SPVs: if the GP or a GP-related party is a significant investor in the SPV (beyond the standard carry interest), the conflict is structural and requires disclosure. The SEC's Form ADV Part 2 and the LPA's related-party provisions are the primary disclosure framework; fund counsel and LPAC chairs are the practical enforcement layer.