Vertical SaaS Deals: Management Incentive Plans (MIP) Done Right
Structuring Management Incentive Plans (MIP) on vertical SaaS deals, with the structure protection and capital connectivity an independent sponsor actually needs.
The economics on a vertical SaaS platform deal usually hinge on a handful of structural decisions. Management Incentive Plans (MIP) is one of them.
The typical vertical SaaS platform sits at $10M to $200M EV with EBITDA in the $2M to $30M (or run-rate ARR) range. The thesis runs on platform plus adjacent module acquisitions inside a single end-market. The ARR number on the CIM is rarely the ARR number on the closing balance sheet. Reconcile early.
How Management Incentive Plans (MIP) actually gets structured.
Size the MIP at 10 to 15 percent of post-close equity, with 60 percent time-vested and 40 percent performance-vested.
Use profits interests for tax efficiency, with a clear strike value at grant.
Build double-trigger acceleration on change of control plus termination.
Document the MIP in the LLC operating agreement, not in a separate plan only.
In vertical SaaS, layer in ARR bridge built before LOI signing as part of the Management Incentive Plans (MIP) workstream.
Promising the MIP percentage in the LOI without modeling the impact on the LP waterfall. The LP finds out and the deal stalls.
"MIPs are the cheapest retention tool you have. Use them deliberately, document them precisely."Jason Powell · Management Incentive Plans (MIP)
The deal is one thing. The capital that opens up after close is another.
The capital that opens up post-close, from refinancing to growth equity to strategic exit, runs through a small set of Wall Street relationships. That network is built in.
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An LOI on the desk, a vertical SaaS target, and a Management Incentive Plans (MIP) question worth a real conversation.
Twenty minutes of practitioner-grade input from a securities attorney whose first move is to read the deal, not the engagement letter.