$100k into 10 separate deals to create my own "mini index fund"?
February 04, 2020
by an investor in Tampa, FL, USA
Are there any other investors that do this? As in, take 5-10% of their total available capital and just spread it around across several different acquisitions.
If the return of the acquisition/search model is 20+% for the investors and I find the deals and invest in them individually I should have a certain degree of diversification across sectors. I assume this is what the various "search fund - funds" do.
Obviously this relies on my own ability to value deals, but assume I was half way decent at it, how do you think I would do over a 5-7 year window?
in Tampa, FL, USA
It seems you're right about traditionally funded searches.
Here's what I'm starting to realize:
There is no shortage of capital that large investors have to invest - they are funding the searchers so that they can participate in a large portion of the funding. As others, have pointed out above - I'm not bringing anything to the table so why would a traditionally funded searcher be interested in my relatively small investment?
It appears they wouldn't be. If someone is running a funded search they likely have investors lining up to participate in a good deal. I assume this is because the terms of a funded search are more favorable to the investors and a large portion of the equity is controlled by them.
Since I posted here, several people reached out to me about investing with them. Interestingly enough, most of these were self funded searchers, looking to fill that 25% equity injection for a specific deal under LOI. They were not looking for support, only capital..
It seems that to accomplish my goal to invest 100k in 10 different acquisitions, I'm more likely to invest with self funded searchers who are only looking for that equity raise and don't have investors at the ready to fully fund the deal.
Can someone out there confirm or refute my understanding of this? I'm really a newbie in all this, so as I'm learning as I go.
from University of Pennsylvania in Wrentham, MA, USA
Congrats on getting a couple of early prospects, just from this posting! And I'm glad to see that searchfunder still works connecting people and deals. This is a great, collegial community as I said :)
Maybe there is more opportunity with self-funded, smaller enterprise value deals that I give credit for. I always presumed that, in today's market, a $400k equity value deal would be funded by friends & family with an SBA loan, or something like that. When those searchers do indeed seek outside capital, I think they often request healthier equity stakes (e.g., 60% of common). I can tell you that, as enterprise values shrink, the number of companies available for sale goes up exponentially. That means you have to work harder to separate the wheat from the chaff. Tread carefully and vet your new partners (as I'm sure you know).