Acquisition Cap Table overcommitment - criteria for investors' selection

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by a searcher from Harvard University - Harvard Business School
in São Paulo, SP, Brasil

9mos ago

Acquisition Cap Table overcommitment - criteria for investors' selection

Hi, I’m running a traditional search fund and currently advancing a deal. After several months of fundraising, we may face a scenario where investors’ commitments exceed the amount we’re raising. Beyond prioritizing traditional SF investors, I’d like to hear from the community on criteria for selecting investors and shaping the final cap table. My current bias is toward a first-come, first-served approach combined with profile complementarity, but I’m not sure these are the best guidelines. Any thoughts or experiences to share would be greatly appreciated. Thanks, Marcos

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reply by a searcher 9mos ago
from University of Massachusetts at Lowell in Worcester County, MA, USA

What is tried to do during my cap raise was meet and pitch to as many prospects I could. But interview them and what they can bring to a potential advisory board. So I was getting to know them as much as they were learning about me and the deal. Safe thing to do is over subscribe as much as you are comfortable. There's always the possibility of last minute drop outs when it comes time to collect deposits. My close end up getting delayed an extra day or 2 because we had issues with investors potentially dropping out last minute...

reply by a searcher 9mos ago
from Erasmus University Rotterdam in Araçatuba, State of São Paulo, Brazil

Hi Marcos, First of all, congrats on advancing on your deal! And having overcommitment from investors is a great sign! Good job and good luck on the final stretch! I would look at the business you're buying and what each investor brings to the table. How will they help? It can be industry knowledge, experience with similar challenges as you're foreseeing, access to interesting contacts, and so on. Barring that, I would try to add some diversity in experiences and backgrounds on the capital table - having people looking at a problem with different perspectives might really help when you need to "think outside of the box". Another point to consider is your personal fit with them (and in the broader sense, the fit with the rest of the cap table). You will be partners for 5+ years and it will work a lot better if you can work well together. It's sometimes better to have someone on your corner that will work through the problems with you than having someone with all experience on paper but not really interested. I would also be open with some of your core investors, the ones that will be part of the deal no matter what, and lay out the options for them and ask for their inputs. They will probably know the other investors much better than what you will get from a couple interviews. Hope it helps!