Glossary · UK
What is Sweet Equity?
Cheap, high-upside equity given to management in a private equity-backed company, sitting behind investor capital.
Full Definition
Sweet equity is the class of ordinary shares typically issued to a company's management team in a private equity buyout, bought at a low nominal cost relative to the "institutional strip" of loan notes and preference shares held by the investing fund. Because it ranks behind the fund's capital and any accrued preferred return in the exit waterfall, sweet equity pays out little or nothing in a poor outcome but can deliver disproportionately large returns to management if the company performs well and the fund's capital and hurdle are cleared first — designed to closely align management incentives with investor returns.