Can someone please help me see the economic attractiveness of being a Search Capital investor? I have difficulties convincing myself that it is such a good deal, and will have more difficulties convincing prospective investors of that. I fully appreciate the softer sides of it (small initial investment while you get to know the searchers, priority to invest participate in the acquisition capital etc.).
Given the risk of the searcher never actually acquiring a company, why should an investor participate in the search capital and not say "come back when you have a deal and I will help you fund that". To me, the ideal scenario for an investor would be to participate in the acquisition capital for a deal where another investor has financed the "search capital" and stayed on to finance part of the acquisition capital. That would serve as a stamp of approval, while I would not run the risk of investing at the search stage...unless, of course, there is a strong investment case for the Search Capital itself.
If anyone could enlighten me on this subject, I would be very grateful.
Best regards,
Adrian
Economics of the Seed Capital?
by a searcher from Norwegian School of Economics and Business Administration
More on Searchfunder
Searchfunder is an online community and toolkit for searchfunds. Over 80% of those involved in searchfunds maintain a Searchfunder.com account to help them network, problem solve challenges, and keep up with the industry.
We maintain partnerships with database providers that make searching more effective, efficient and affordable along with features that help searchers find deals and investors and vice versa.
We maintain partnerships with database providers that make searching more effective, efficient and affordable along with features that help searchers find deals and investors and vice versa.
The "trader" is one:
Seed capital is an option (with zero strike price) on the entrepreneur. The seed capital is what the investor pays for the option. I use the word strike price in the sense that is free to exercise that option (it’s “exercised” automatically by rolling into the acquisition equity).
Upside is unknown and uncapped. Downside is known and capped (at the seed $ invested). These investors like optionality.
Hope that's helpful.