Anyone built a financial model that mimics the Stanford Primer's returns?

by a searcher from Harvard University - Harvard Business School

Oct 21,2020

I ran into a few problems trying to match their results.
1) In Structure 2, why do the principals not own more than 30% of common stock if they paid off the entire portion of redeemable preferred equity (RPE)? If RPE was 35% of equity, and is now zero, then the principals should own 30%/(100% - 35%) = 46% of common stock at the time of the sale. What am I missing?
2) What are the interest rates and terms of the loans you used? With Senior Debt @ 4% over 7y and Seller Debt @ 6% over 7y, I get a negative FCF in year 1.

Happy to dive through and discuss the numbers on a call.

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searcher from Harvard University - Harvard Business School

Feel free to use this model, just make a copy of it to your own drive. It is built to allow different interest rates, loan terms, and any of the scenarios listed in the search fund primer. The numbers don't match theirs exactly but they are pretty close. The 2 sheets let you see the difference of paying the redeemable down first or the loans. If the loan covenants allow it, it is always better to pay the redeemable first since it has a higher interest rate and it will increase investor IRR and therefore the % of common that you receive.

10/23/2020 | like reply | 3 likes

searcher from Harvard University - Harvard Business School

https://docs.google.com/spreadsheets/d/1Nbky_1NkVjkyW-5ENkcpeFihvdGZYKEOuhhrYaJZnDI/edit?usp=sharing

10/23/2020 | like reply | 7 likes

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