Convention for recognizing broken deal costs on self-funded searches

searcher profile

March 18, 2024

by a searcher from University of Victoria in Vancouver, BC, Canada

Hey folks,

Does anyone have any insights to share about how they incorporated broken deal costs into future deals and/or their self-funded search? I have about $30k worth of expenses from a recently broken deal.


I'm Thinking about either including it as an equity contribution as part of the search or sharing it with an investor who's along for the journey as well. I think it warrants being recognized, as it would in a traditional search, but I am curious as to how others have approached it.

1
6
108
Replies
6
commentor profile
Reply by a searcher
from New York University in Dallas, TX, USA
1. There is nothing wrong with asking the investors to consider your broken deal costs incurred in arriving at the ultimate deal assuming that the deal costs are reasonable… and it sounds like yours are. If done in the right way and at the right time you have a real shot. If it were me in your shoes I would absolutely ask and accept that they might say no….if I were the investor I would also consider covering my prorata share if I were excited about you and the deal.
2. Circumstances are obviously important and if it’s the same investors on your deals perhaps they include some or all of those broken deal costs as part of your capital contribution(like you suggested) I have seen this before with others and also been the beneficiary of this myself in the past . I don’t see them writing you a check at close and reimbursing though. Again the circumstances , investor dynamics and timing of how you deliver the ask is crucial .


I’ve also seen these type of asks thrown in, if you have a competitive deal and have more demand from investors than capacity you could consider this as part of your ask in economic negotiations …

hope this helps you and good luck.
commentor profile
Reply by a searcher
from University of Pennsylvania in Seattle, WA, USA
IMO this is the cost of doing business, unfortunately, and is part of why self funded deals generally put more economic reward to the searcher. I think regardless of whether you have dead deal costs from prior transactions an investor is still looking for 30-35% IRR and any excess goes to the searcher.

I would counter and ask why an investor should share in these costs when they can invest in a different self funded deal and not participate in them? To me a big difference in why traditional/self funded have different economics is that self funded investors are writing checks right before close and don't bear the risks of a transaction not happening.
commentor profile
+4 more replies.
Join the discussion