EXTERNAL EQUITY ON SELF-FUNDED SEARCHES AND/OR SELF-FUNDED ACQUISITIONS
I've been thinking quite a bit about a tricky problem pretty much every self-funded searcher eventually encounters... how do you price the equity for passive external investors?
I'm not going to put out a definitive statement on where I stand on this, but I thought it might be helpful to frame up the various issues at play and to put the key points of reference out there for people to consider. Distilling it down to the basics, this calculation needs to put value on 3 things at the closing: (1) the investors' contribution (the numerator), and (2) the business or deal itself (the denominator piece 1) and (3) the business under the control of the sponsor (the deonominator piece 2). From these you can then work to a conclusions on the share of equity the investor gets for the contribution made, and/or promised.