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Your owner or prospective equity investor will evaluate your investment package in a similar manner to that of your lender, but with more of an eye toward the upside potential of your deal. In addition to evaluating the overall feasibility of the project, the qualifications of your project management team, and the risk associated with achieving your financial projections, prospective equity investors are also interested in the answers to the following questions: 1. How much equity is the sponsor group investing in the deal? ■ This is a tough question to answer, particularly if you have a limited amount of capital to invest in the venture or if you have elected not to invest your own funds in the deal. ■ If you are able and willing to provide between 5% and 10% of the equity required, the outside equity investor will usually be comfortable. 2. What annual return on investment (ROI) can I expect to receive, what’s the payback period, what is the net present value (NPV) of the deal, what is my projected internal rate of return (IRR), and how much profit is the sponsor group making on the deal? ■ As long as your owner or prospective equity investor is confident that he will achieve his targeted IRR hurdle rate, he will usually be okay with you earning a portion of the cash flow as well. ■ The key is for the equity investors to receive their return first before you reap any significant rewards from the deal. 3. What is the exit strategy? ■ An equity investor’s strategy is often to invest their equity, make a fast profit, and look for another opportunity to do it again. ■ The faster the exit strategy, the more likely the outside equity investor will be to invest in your deal. If you provide your owner and/or equity investor with credible answers to these three questions, they are likely to invest equity in your deal. If you reward them with the IRR they are seeking and execute your exit strategy well, you will also have a likely source of equity for your next deal.