Andrew, that seems like a difficult prospect from a self-funded search angle. Utilizing an LBO model cash flow is king. The SBA loan, among many other banking tools I have come across in my brief time searching, all look at these acquisitions as largely good will transactions. As such, they consider the risk they take on a matter of the Debt Service Coverage Ratio. Each is comfortable with a different amount of expected cash flows to cover their debt service. The SBA adds an additional layer of insulation from the government. All this comes down to security from historic cash flows. I can't talk to what the bigger search funds are comfortable with, but I would imagine you would be more successful if you found a fund, sponsor, banking team, or group of advisors that were intimately familiar with a technology or product you were thinking of acquiring out of incubation. I know this didn't directly answer your question, but I hope it added something for your consideration.

^[redacted]‌ Thanks! Super helpful!

I'd love to hear the larger fund perspective too if anyone else has any thoughts.

Andrew - I am happy to have a chat about this approach. I looked at something similar last year.
I still like looking at these companies but investors don't. So if you can do it with your own money, it is feasible and can yield nice returns. Convincing investors is more difficult in my experience - however, you might get lucky and find some business angels that go that route.

^[redacted]‌ would likely be a good person for you to connect with.

Being pre-revenue they don't have any real validation of their business model. Just because they're incubated they are no less risky than all other startups. I may invest, but I'd never acquire pre-revenue. Why do they need an execution team? Why are they selling? Red flags for a financial acquirer.