Exiting Investor on a Traditional Searcher

searcher profile

November 06, 2020

by a searcher from École Centrale Paris in Paris, France

An investor in our traditional search fund told me that he no longer has enough disposable capital to invest on a possible acquisition. We are still searching and don’t have a potential transaction as of today. What are our alternatives ? Is it possible to sell his unit to someone else outside of our investor pool ? There will probably be a ROFR of the current investors, but ideally, I would rather sell outside of my current cap table. Thank you all in advance !

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Reply by a searcher
from Yale University in Moscow, Russia
I think that it is really negotiable. You need to check with lawyers regarding ROFR, but overall I wouldn't see a problem if you told all your existing investors if you would like to substitute one investor for another during the search phase. I would be a bit surprised if any of the traditional SF investors would insist on ROFR provision during the search phase.

Also, you don't really need to do this now - you can (and I believe should) keep contact with some investors outside of your cap table so that you have access to equity gap capital if it is needed when acquisition happens.

PS Just my perspective as a fellow searcher - to get a good perspective of an investor, if I were you I'd speak with someone on your cap table who is a traditional SF investor and whom you really trust.
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Reply by a searcher
from Ivey Business School at Western University in Toronto, ON, Canada
Yeah unfortunately not alot you can do here, barring some flexibility in your legal docs. In reality that person is probably not the only investor who will not bring follow on when you look to fund your deal. Each investor has a slightly different style and pain points so it's very tough to find something that every investor wants to follow through on. Usually if you have a good enough deal, other investors in your fund will pick up the slack or you can reach out to others In the community to pick up the rest.
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