Experience working for the business with a future agreement to acquire in ~3yr?

April 12, 2023

by a searcher from The University of Texas at Austin - Red McCombs School of Business in San Francisco Bay Area, CA, USA

Hey Everyone,

First off, want to say what a great resource Searchfunder has been. Shout out to ^redacted‌ and team for building this supportive community.

Posting today seeking some advice. My long term goal has always been to own and operate my own SMB. After hearing about the ETA model a few months ago, I felt like this was my opportunity to achieve that goal. However, at this current point in my life (moving, starting a family, career transition), I'm brought back down to earth that this may not be the right time.

Instead, I've been thinking about an approach where I can work for/in the business for ~2-3 years with a future agreement to acquire.

Curious if anyone has structured an agreement like this in the past? If so, what was the experience like? Pros and cons of structuring a deal like this?

Any thoughts would be much appreciated!

- James

Reply by an investor
from Western Washington University in Key West, FL 33040, USA

If you do this, you need to be very careful. You need set the future option purchase price, and all the other key terms of the future purchase, now. The future option purchase price should be close to the fair value of the business today, not in the future. Thus, you basically need to hire an attorney and go through all the steps of the purchase agreement anyways. Otherwise, you are working against yourself. You are working for the company, for relatively little compensation, increasing the value of the company doing the things you would likely do if you were the owner. So not only is all your hard work going relatively unrewarded compared to what you would make as the owner, but you are also increasing the price that you will eventually have to pay to buy the company. Or the owner could decide not to sell to you in the future once you've improved their business and it is no longer reliant on them as the owner. So, I would highly recommend against doing this unless you already have the future purchase agreement and option purchase price finalized. But at that point, you might as well just buy the company now anyway...

Reply by a searcher
from University of Pennsylvania in Atlanta, GA, USA

Hi James, Can you elaborate on why you feel now is not the right time? Could help us suggest something that meets your objectives.

I’m not sure I understand how going through the search process, negotiating the deal upfront, running the company and then doing the closing + wiring of funds 3 years later helps with the issues you raise around having a lot going on in your life right now. If I understand correctly, you’re doing all the same work upfront and then asking to delay the closing by 3 years while you run the business.

If the reason for delaying the closing is financial (either need more time to save for equity injection or not comfortable with personal guarantee), there are some other ETA pathways that could remove those blockers. Happy to share more on that if helpful.

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