# Preferred return (hurdle)

The return investors are owed before the operator shares profits.

It is the first meaningful tier of the waterfall: until investors have earned it and recovered their capital, the [searcher](https://searchspheresource.com/glossary/searcher)'s carry pays nothing at all, which points the operator squarely at getting investors whole before taking a share. Two details decide how hard that is. Whether it compounds annually or accrues simply changes the hurdle materially over five years, and whether unpaid amounts carry forward decides what a slow year costs you later.

In numbers: On a $2,000,000 equity raise with an 8% preferred, investors are owed $160,000 a year before the searcher's carry pays anything. Hold the business five years and $800,000 of simple preferred, or about $939,000 compounded annually, comes back with the $2,000,000 of capital before the split reaches the operator.

Source: https://searchspheresource.com/glossary/preferred-return
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