The Rise of Structured Equity in Private Deals

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Welcome to Unlocking Liquidity, the podcast from PrimaryMarkets that brings the dynamic world of private capital to life. Each week, we dive into the trends, opportunities and challenges shaping today's investment landscape, from emerging asset classes and market innovation through to strategies for navigating liquidity in unlisted markets. Whether you're an experienced investor, a dealmaker, or simply curious about private markets, Unlocking Liquidity offers analysis and real-world insights to help you make sense of complexity and stay ahead of what's next.

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Structured equity is no longer a niche tool used at the edges of private markets. It is becoming central to how sophisticated capital is deployed. As companies stay private longer and traditional valuation benchmarks become harder to define, investors and founders are increasingly turning to structure rather than price to get deals done.

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In this episode, we explore the rise of structured equity in private deals, how it is reshaping capital formation, and why it is becoming an essential part of the private market playbook for wholesale and sophisticated investors. From preferred equity and convertibles to performance-linked outcomes and liquidity solutions, this is a shift that is changing not just how deals are priced, but how they are designed.

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Private markets have matured dramatically over the past decade. Companies are staying private for longer, founders are more selective about dilution, investors are demanding clearer downside protection, and traditional funding pathways such as IPOs or broad-based venture rounds are no longer the default answer for every growth business. In that environment, one theme has emerged with increasing force: structured equity.

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Once viewed as a niche tool used mainly in distressed or late-stage venture transactions, structured equity is now becoming a mainstream feature of private dealmaking. Across growth capital, private equity, family office investing and secondary transactions, investors are using tailored equity instruments to bridge valuation gaps, manage risk, unlock liquidity and fund expansion plans.

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For sophisticated and wholesale investors, structured equity is no longer something happening quietly in the background. It is becoming one of the defining mechanics of modern private capital markets.

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Structured equity refers to equity investments that include customised economic or governance terms beyond ordinary shares. Rather than simply subscribing for common equity on a standard basis, investors and issuers negotiate specific rights designed to align incentives and manage outcomes.

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These structures can include preferred equity, convertible preference shares, ratchets, liquidation preferences, anti-dilution protections, redemption rights, milestone-based vesting, dividend preferences, board rights or staged capital releases.

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The concept is simple: instead of debating only price, parties negotiate structure.

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That matters because many private deals stall over valuation. Founders may believe the company deserves a premium multiple. Investors may want downside protection in uncertain markets. Structured equity can allow both sides to proceed without forcing a blunt compromise on headline price.

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It has become particularly relevant in markets where interest rates, slower exits and uneven capital flows have made traditional equity rounds harder to complete.

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Several structural forces are driving adoption.

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First, private companies are staying private for longer. In previous cycles, businesses often raised venture capital, scaled rapidly and listed earlier. Today, many quality companies remain private deep into their maturity curve. That creates a need for more sophisticated financing solutions between early growth and public markets. BlackRock notes that slower IPO activity is elevating the role of private strategies and liquidity solutions across markets.

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Second, valuation gaps remain common. Sellers and founders may anchor to 2021-style multiples, while investors underwrite to current market realities. Structured equity can bridge that gap through earn-outs, conversion features or return hurdles.

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Third, liquidity pressure is increasing. Existing shareholders, early staff, venture funds and founders often want partial liquidity without a full exit event. Neuberger Berman recently highlighted that hybrid capital and preferred equity solutions are gaining traction as a way to manufacture liquidity while funding strategic plans.

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Fourth, investors are more selective. In uncertain markets, capital providers often want stronger downside protection than plain common equity offers. Structure can help achieve that.

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Preferred Equity: Perhaps the most common format, preferred equity gives investors priority economics over ordinary shareholders. This may include preferred dividends, liquidation preference or priority on exit proceeds.

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For issuers, preferred equity can be less restrictive than debt. For investors, it may provide a stronger risk-adjusted return profile.

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Convertible Instruments: Convertible preference shares or convertible notes begin with protective features but convert into ordinary equity under agreed triggers such as IPO, sale or future financing rounds.

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This is especially useful when the company expects a clearer valuation marker in the future.

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Ratchets and Performance Structures: Ratchets adjust ownership economics depending on future performance. If revenue or EBITDA targets are met, founders retain more upside. If targets are missed, investors receive enhanced returns.

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These are increasingly common in growth equity and management buyout transactions.

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Redemption and Liquidity Rights: Some structures include rights allowing investors to seek redemption after a period of time or trigger sale processes under specific conditions. These provisions can be valuable where liquidity timing is uncertain.

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Secondary + Primary Hybrids: A modern trend is combining fresh capital for the company with partial liquidity for existing holders in one structured round. This can reduce cap table pressure while aligning all parties.

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For private companies, structure can solve problems that standard equity often cannot.

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A founder-led business may want growth capital but resist heavy dilution. A family-owned company may want expansion funding while maintaining control. A venture-backed company may need bridge capital but not want to price a weak round. A profitable mature company may want shareholder liquidity without committing to a sale process.

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Structured equity can create a bespoke answer to each of these scenarios.

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This flexibility is one reason deal structures across Australian markets are evolving beyond traditional buyouts. William Buck recently observed increasing use of partial acquisitions, earn-outs and continuation vehicles as valuation discipline shapes transactions.

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For sophisticated investors, structured equity can offer several attractions.

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It may provide enhanced downside protection relative to ordinary shares. It can improve return asymmetry by preserving upside while securing priority economics. It may reduce the binary nature of private investing where outcomes are often either highly successful or disappointing.

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It can also open access to quality companies that would otherwise not raise capital on straight equity terms.

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Many founders dislike the signalling effect of a discounted round. Yet they may accept structure if it protects valuation optics while still attracting capital.

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For investors capable of underwriting bespoke deals, this can create compelling entry points.

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Australia is fertile ground for structured private deals.

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The country has a deep pool of founder-led businesses, strong family offices, sophisticated self-managed wealth capital, and one of the world�s largest retirement savings systems. ASIC has also recognised the growing significance of private markets in Australia�s evolving capital landscape.

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In practice, structured equity can be relevant across several local sectors.

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Technology businesses seeking scale capital but delaying IPO plans may use convertible preference structures.

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Healthcare and services businesses with recurring earnings may attract minority growth investors using preferred returns plus equity upside.

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Resources and critical minerals companies may use milestone-linked structures tied to approvals, feasibility studies or production targets.

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Property-adjacent operating businesses may use hybrid capital where traditional lenders are conservative.

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Australia�s mid-market is especially well suited because many businesses are too large for early-stage venture funding but too founder-sensitive for traditional control buyouts.

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Another major growth area is liquidity solutions for existing holders.

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As companies remain private longer, employees, angel investors and early backers often hold valuable but illiquid stakes. Structured secondary transactions can combine partial shareholder exits with new capital and governance reset.

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This is highly relevant to private market platforms and organised trading environments. Liquidity no longer needs to wait for IPO. It can be designed earlier through structured windows, managed processes and negotiated transactions.

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For shareholders in quality unlisted companies, that evolution is significant.

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Structure is powerful, but it is not magic.

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Complex terms can mask weak fundamentals. If a business lacks cash flow quality, market demand or governance discipline, no amount of structuring can create value sustainably.

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Investors should pay close attention to waterfall outcomes, conversion mechanics, dilution triggers, board rights, senior ranking obligations and exit scenarios.

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Headline valuation can also be misleading. A company raising at a high nominal valuation with heavy investor preferences may in substance be priced lower than it appears.

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This is why sophisticated diligence matters. Investors must analyse not only the business, but the cap table architecture.

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The rise of structured equity signals something deeper than a funding trend. It reflects the institutionalisation of private markets.

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As private companies grow larger and stay private longer, financing tools naturally become more sophisticated. Markets evolve from simple founder rounds into complex capital ecosystems involving primary issuance, secondaries, hybrid instruments and tailored liquidity solutions.

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That is already visible globally. Bain�s latest Asia-Pacific private equity report notes increased non-control transactions in Australia and New Zealand, highlighting the broader move beyond traditional control buyouts.

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The next phase of private investing will likely be less about plain ordinary shares and more about precision capital.

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Structured equity is rising because it solves real-world deal friction. It bridges valuation gaps, unlocks liquidity, preserves ownership, manages risk and enables transactions that otherwise would not happen.

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For founders, it can be a smarter alternative to blunt dilution. For investors, it can offer better alignment and stronger downside protection. For private markets overall, it increases flexibility and depth.

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For wholesale and sophisticated investors navigating unlisted opportunities, understanding structured equity is becoming essential. In the years ahead, many of the most attractive private deals may not be the simplest ones. They may be the best structured ones.

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And that brings us to the end of this episode of Unlocking Liquidity. Thanks for spending your time with us, we hope today�s conversation gave you a fresh perspective on private markets and how liquidity is evolving. If you enjoyed the episode, please follow or subscribe wherever you listen, and feel free to share it with someone who�d get value from it. For more insights, opportunities and episodes, visit PrimaryMarkets.com. Until next time, thanks for listening, and we�ll see you in the next conversation.