Does anyone have any thoughts on the typical investment terms for an equity investment in a "buy and hold" SMB company and how they may differ from a company expecting to be exited in 5-7 years? Particularly a company that may aim to reinvest most of its profits vs. distribute profits in the first few years?
I've typically seen equity investment terms have a discount or step up on the valuation, an annual interest 6-8%, and preferred payout status. The target holding period may be 5-7 years and projections aim to double the business size and thus ROI is a bit more clear/clean.
But for a company aimed to be a buy and hold that wants to reinvest most of its profits in the first 2-4 years to grow, it stretches the return window out more with payback coming on the backend.
How would you structure or incentivize investors in this scenario?
Equity Investment Terms on "buy/hold" deals vs. deals with target exits
by a searcher from University of Akron
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