Friends-and-family acquisition capital: what terms actually work for search-style deals?

March 20, 2026

by a searcher from Harvard University - Harvard Business School in Cambridge, MA, USA

I'm a self-funded searcher (HBS MBA, prior military, PE deal experience) targeting a $1–3M EBITDA services or manufacturing business. I am raising a portion of the acquisition equity from friends and family who are sophisticated investors, but do not have search fund or ETA experience. I want terms that are (1) simple enough that a non-ETA investor can understand them without a 2-hour education session, (2) fair enough to protect the relationship if things don't go as planned, and (3) don't obliterate my upside if the deal goes well. I've been thinking through a few structures: a. Convertible debt. b. Non-participating preferred with either a hurdle rate or MOIC c. Participating preferred with a lower hurdle d. Dollar-for-dollar common equity on total project cost e. Common equity with a step-up For those who've raised from friends and family on a deal: which structure did you use, would you do it again, and what (if anything) blew up that you didn't expect?

Reply by an investor
from McGill University in San Diego, CA, USA

Given that this is a friends and family round, the right structure depends on your investor base. Questions to ponder: 1. Are you looking to treat them like institutional investors (who can access other search fund deals with a high expected rate of return) or offer them terms that would make them slightly better off than their existing set of more limited options (a stock market/corporate bond market)? 2. Are your investor more interested in protecting the downside or enjoying the upside? 3. How important is yield/annual cash flows? 4. Do they have a similar time horizon as you? There are no right/wrong answers here. What Tom suggested is very middle of the road and easy to explain but may not be suitable in your specific situation so I would make sure it's suitable. Regardless of the structure you go with, given that first time SF investors are generally not familiar with the waterfall, and timing of cash flows, I would take the time to explain how they get paid, when, and how much (looking at different scenarios) so everyone is on the same page. Search fund investments are risky, illiquid, and long duration. Important that your investor base understands what they are signing up for.

Reply by a searcher
from Rollins College in Orlando, FL, USA

I've not had to raise capital from friends and family yet. I've been able to allocate personal and partner capital and seller note to fund, but I've pitched this structure and received good feedback. Of course, we'll see when push comes to shove on check writting time. I think that the a simple non-participating pref with a clean hurdle (your option B), not converts or participating, is the cleanest and most stright forward. Converts get messy fast around timing/valuation, and people overthink it, and participating looks fine until you walk them through a good exit and they realize how much of the upside they’re taking. Easiest to sell is “you get your 1.5–2.0x, then we split the upside, with a step-up for you above the hurdle." Keep the cap stack tight (senior + seller note + one equity class), and frame everything on total invested capital, not % ownership, or you’ll get dragged into optics vs outcomes.

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