Sourcing, Underwriting, Structuring and Living With Co-Investments
Julian R. Sterling
These are the companion files of The Co-Investment Practitioner by Julian R. Sterling.The book on Amazon →
One Excel workbook that prices what Chapter 11 leaves as a warning, now corrected. Around it, a blank version for your own programme, ten working documents to print, forty questions that mark themselves, and three cases the book does not work. All free. Nothing is gated behind a sign-up, and no email address is asked for.
Six workbooks, the printable documents and the read-me. Each group below can also be
downloaded on its own. Last revised 22 September 2026.
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Chapter 11 tells you to “build a reserve policy into your program before the first
deal, not after the first painful round”, and never says how much. This file says how
much — and the answer turns out to depend on one clause, not on your portfolio.
First, dilution is not the loss the chapter says it is. You own 2.50 per cent
of a company at 400. It misses plan and raises at a 200 pre-money. Don’t follow, and you
hold 1.667 per cent. The chapter calls that a stake “heavily eroded”. Compute it:
2.50 per cent of 200 is 5, and 1.667 per cent of 300 is 5.
Nothing was taken from you. The markdown did the damage, and it hit the investors who wrote
follow-on cheques just as hard.
What you give up is an option, and it has a price. The follow-on dollars
return 2.33× at a 700 exit — but that money could go into another
co-investment at Chapter 3’s 2.00×. Measured against that, following on wins
only above an exit equity of 600: twice the mark the rescue round just set,
in a company that missed plan badly enough to need rescuing.
Then change one clause. Add a 1× participating preference on the new money and halve
non-participants’ units, and the non-participant goes from 1.17× to
0.50×, the marginal return jumps to 5.00×, and
the break-even collapses to 250 — below the round’s own
post-money. Same asset, same exit. Nothing about the company changed.
And that is the trap. Across a ten-deal programme with no reserve, the clause
costs a quarter of a turn of multiple — 1.667× falls to
1.400× — while making every individual follow-on look more obviously correct. The
marginal-dollar test cannot see it. Only the programme number can, and by then the money is
spent.
The last sheet sizes the reserve properly, as an expectation over the binomial distribution of
how many companies come back. Under plain dilution the optimum is
9.1 per cent, exactly enough to fund four raisers, and worth 0.04×; fifteen per cent is worth half that and
twenty per cent loses money, because past the optimum a reserve moves capital
out of a 2.00× sleeve into a 1.09× one. Under pay-to-play the optimum is
13.0 per cent, six raisers, and worth 0.29× — about
Chapter 3’s entire fee-and-carry saving of 0.28×. Fifteen times the value, same portfolio,
one clause. Twenty-four checks.
Set the probability of a follow-on to zero and check that the programme returns exactly
2.00×. That is Chapter 3’s headline for a no-fee co-investment, and it is the
control on the whole file — if it does not hold, nothing else in the workbook should be
believed. Then walk the reserve policy from five per cent to twenty-five and watch the value of
the reserve rise, peak and go negative under plain dilution while staying comfortably positive
under pay-to-play. The two curves are the argument.
What the arithmetic does not settle
It cannot tell you the probability that a given company comes back for money, which is the input
the whole reserve question turns on and the one nobody knows at programme design. It assumes the
rescued companies exit worse than the ones that never needed rescuing — change that and the
case for following on strengthens sharply, so the exit assumption is worth stressing in both
directions. And it gives you no edge in choosing which follow-ons to fund; the moment you assume
one, you have assumed the answer. The point of the sizing sheet is what a reserve is worth
before any edge, so that the edge has to be argued rather than presumed.
The same model, for your own programme
The workbook with every input emptied. Enter your own cheque, round and exit, and the clause in your own shareholders’ agreement; the checks sheet counts what is still missing and tests what holds for any inputs.
Chapter 11 and Appendix F
A blank follow-on model
Your cheque and the entry equity value, the programme, the chance a deal comes back for money, the round’s pre-money and new money, the exits, the idle return, your alternative use of a dollar, the clause and the reserve policy. The file gives what dilution does on the day, the break-even exit for following on under both regimes, the cost of the clause to the programme and what your reserve is worth.
The book’s inputs are listed in a text file inside the archive. Type them back in and the file returns the 600 and 250 break-evens and a fifteen per cent reserve worth +0.019 and +0.285 turns.
Ten pages to print and use. A4, with margins wide enough for US Letter.
Chapters 4 to 7, 10 to 15 · Appendices A and B
Ten working documents
The readiness assessment of Chapter 4, with its five questions and three verdicts. The mandate with numbers in it, and the limit grid measured look-through. The governance ladder with its service levels and exception log. The first-48-hour early read with the signals that tell excess from a deal nobody wanted. The Appendix A checklist. The Appendix B timeline and the decision memo. The return bridge with the eight modelling traps. The terms that move the return, led by the pay-to-play question. The position file. And the pipeline log with the deal journal.
A workbook that marks itself. Answer in the yellow cells; the marking fills in as you go.
All parts of the book
Forty questions on the book
Eight on the foundations, seven on building the machine, seven on underwriting and the return bridge, seven on terms, the portfolio and Appendix F, five on life after the close through to the career, and six on the three cases below. Numbers are marked to a tolerance, multiple choice to the letter, and the score sheet counts your errors part by part: that is your revision list.
Nothing is hidden. The marking sheet holds every answer, every tolerance, and the reason for each answer.
New material, not a restatement. Three situations the chapters name and never take to a number. Each case is one workbook: the note is the first sheet, the model is the rest, and a checks sheet closes it. Type your own figures in and every finding recomputes.
Chapter 3 · Case one
How much worse can the deals be?
Chapter 3 says a co-investment can be a somewhat worse asset than the fund’s average and still come out ahead, “but only up to a limit”, and never gives it. On its own deal the limit is 0.28× of gross multiple, the whole fee and carry. At most about 19 per cent of accepted deals can be the 0.5× ones nobody wanted. The cushion shrinks with the deal, to 0.10× at a 1.00× gross, and halves on reduced-fee terms.
Chapters 3 and 12 · Case two
Four draws
Chapter 3’s LP who drew four ordinary results and lagged its fund book, priced. With outcomes spread the way the chapter describes and an average of 2.00×, one no-fee deal lags the fund’s 1.72× one time in five; four deals lag 28.6 per cent of the time, more often than one. Ten deals still lag 22 per cent of the time, thirty 11. Diversification removes the chance of losing money fast and the chance of lagging slowly.
Chapters 4, 10 and 12 · Case three
The zero that erases a dozen
Chapter 4 says one impaired co-investment can erase the fee savings of a dozen good ones. At standard size a zero erases 3.6 deals’ savings counted on capital, 7.1 counted on expected value. A dozen needs a cheque 1.68 to 3.36 times the standard: the claim describes a maximum-sized check. Counting what you already own through the fund adds a quarter, and a loss budget written in deals’ savings turns “size to the downside” into a cheque.
twenty-four controls, each stating its own verdict — three of them structural
Every figure is illustrative, as everything in the book is. The company, the round, the clause
and the exit are invented. The arithmetic is not — and two of the checks exist precisely
because they disagree with the chapter.
Opening the file
The workbook opens in Microsoft Excel, LibreOffice Calc, Google Sheets and Numbers. It uses no
macros and no add-ins, so nothing needs to be enabled or trusted. If your spreadsheet asks to
update links on opening, decline — there are none.
What changed, and when
22 Sep 2026
The book’s workbook corrected: the preference on the new money is labelled participating, as the arithmetic always assumed, and the optimum reserves are 9.1 and 13.0 per cent, the points that fund exactly four and six raisers. Added: a blank version, ten working documents, forty questions that mark themselves and three new cases. The workbook can now also be downloaded on its own.
Articles on this book
What a follow-on reserve is actually worth0.019 turns under plain dilution, 0.285 under pay-to-play. The optimum is a property of the shareholders’ agreement, not of the portfolio.
What does deal-by-deal carry cost a co-investor?Carry rate times losses on losing deals: on five deals grossing 1.70x, 10 per cent deal by deal costs 4.5 million against 3.5 pooled, an effective 12.86 per cent.
How much does co-investment reduce the J-curve?It removes the fee dip, not the cash one: after year one the fund's IRR is minus 18.2 per cent and the same deals held as co-investments show 0.0.
Closing the DealTwo defensible bridges 20.70 million apart, a peg worth 7.00 million, and the six choices that remove 6.60 of a 12.00 earn-out.
CMBS and CRE CLOsWhere the loss actually lands, from appraisal reduction to realised severity, and what the B-piece is really being paid for.
How to Read a Commercial LeaseThe three refinements chapter 19 names and never performs, and the renewal rate below which the mark-to-market is worth nothing.
How to Read a Credit AgreementWhere the default actually comes from, the cure that costs 5.5 times the other, and the capacity nobody adds up.
How to Read a Real Estate Loan AgreementThe cure ratio in closed form, the four-point window in which the cheap cure works, and the cure sized to the wrong threshold.
Office Real EstateA six per cent yield that returns 3.2 per cent once the re-letting cycle is paid for, and the headline-to-net-effective rent arithmetic.
Private Equity Real EstateBoth worked waterfalls to the dollar, the two capital stacks, and the arithmetic of the promote made changeable.
Private Markets PerformanceThirty-one of the thirty-three figures chapter 19 publishes reproduce exactly — and the two that do not are named rather than quietly adopted.
Raising a Real Estate FundThe chapter 17 funnel run on a calendar — when the first close actually lands, and why more travel does not help.
Real Estate FinanceFour people look at one building and reach four numbers; the lender is whole only above 105,109,489, twelve per cent below today’s value rather than forty.
Real Estate Financial ModelingProperty, development and fund models built line by line, and the modelling test worked end to end.
Real Estate Fund ManagementThe waterfall of 6.11, the build-to-core of 8.7 and the proceeds gap, reproduced as live formulas rather than asserted.
REIT Analysis and ValuationFFO of 532.0, AFFO of 381.0, net asset value and dividend safety — every figure a formula you can change.
Retail Real EstateThe occupancy cost of every unit in a centre, the sixteen per cent of the rent roll no tenant can sustain, and the right-size-convert-or-hold decision priced.
Sale and LeasebackA €179.5 million transaction end to end, with rent cover measured on the entity that actually signs the lease.
Self-Storage Real EstateThe cohort engine behind a 590-unit store, and the rate increase on existing customers priced against the move-outs it causes.
The Fund Finance ProfessionalChapter 8 builds the reported-to-eligible NAV bridge; chapter 9 computes every ratio without it. Two points at every state — and what a subscription line does to the IRR.
The Growth Equity InvestorWhat a pro rata cheque really costs, and the band where defending your ownership loses money.
The Private Credit InvestorThe two coverage ratios are not measured on the same thing: the erosion is 47.7 per cent, not the 28.7 the headline implies.
The Private Equity Fund Controller PlaybookThe book defines IRR, DPI, RVPI and TVPI, tells you to update them at the exit, and prints not one value. Computed: a 1.833× deal inside a fund at 0.892 TVPI.
The Venture Capital AssociateWhat defending a position costs, and how many companies a reserve pool actually defends.
Financial Risk ManagementA fund inside every limit that cannot meet a redemption — and the number that decides it is the one with no currency attached.
Business ValuationThree advisers land 26.8 per cent apart on one company, and the whole gap turns out to be 1.96 points of perpetual growth.
Quantitative FinanceThree models agree to a quarter of one per cent about a number that one unobservable input moves a hundred and three times as much.
Asset ManagementFour people quote four returns for one mandate, all correct and 2.7017 points apart — forty-eight times the manager’s net skill.
Alternative InvestmentsA manager reports 13.29 per cent and the endowment earns 6.26 — both correct, and only a third of the advertised advantage arrives.
Credit AnalysisFour defensible EBITDAs on one borrower give leverage from 3.19x to 6.47x — and the add-back argument is fifty times the covenant headroom.
Venture CapitalOne company out of twenty-eight returns 56.7 per cent of the fund, and half the capital goes in after the decision — at half the return.
Machine Learning for FinanceFive people quote the accuracy of one credit model, all five are right, and the number that decides how much money it makes is none of them.
Commercial Real Estate InvestingThe equity earned 8.6647 per cent and the investor received exactly 8.0000 — the preferred return, and nothing above it.
Mergers and AcquisitionsThe board paper says the deal creates 13,436,667 of value. The arithmetic says it destroys 17,530,855. Nobody is lying.
DerivativesThe treasury report says the hedge cost 1,233,698. That is the interest differential, not a cost.
Treasury ManagementFive cash balances for one company, all correct and 145,600,000 apart — and the revolver that is two-thirds of the liquidity leaves at a revenue fall of 8.4127 per cent.
Financial Planning and AnalysisRevenue 3.0190 per cent above budget and operating profit 16.3209 per cent below it, in the same quarter, with every figure correctly stated.
Energy TradingA position report that is 91.7031 per cent hedged and correctly computed, on a book that is short 2,542,000 MWh — and a margin call of 198,400,000 the next morning.
Construction Cost ControlA contract sum of 26,301,102 became a final account of 29,153,363 on the building that was drawn — and 85.8 per cent of what was lost was knowable on the day it was signed.
Pricing StrategyA list price of 148.00, a pocket price of 112.51, and the nine deductions in between — with what one point of price is actually worth.
Trade FinanceSix routes to payment on one 4,200,000 export order cost between 178,040 and 223,268, a spread worth 14.8 per cent of the margin, and a day of buyer credit costs 1,031.76.
Cost AccountingOne factory costed twice on the same 13,440,000 of overhead, and 4,053,091 moves between four product families.
Contract ManagementA bid 5.50 a unit cheaper, signed on paper worth 9.81 a unit more — and 94.68 per cent of it was knowable on the day of signature.
Capital MarketsFour defensible readings of one bond, the cost of an issue under each convention, and the placement discount computed at a constant discount.
Financial RegulationThree ratios pass and the fourth is in breach by 1,956.0 million: the output floor, the liquidity buffer after encumbrance, and the loan split.
Bank ManagementFour defensible readings of one balance sheet, the deposit beta measured two ways, and the liquidity that lasts 3.9 days.
The Real Estate WorkoutFour ways out of one broken loan, discounted to today, and the 58.7 cents at which a payoff beats enforcement.
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