How does the 1.5x step up on investor capital at acquisition work?

by a searcher from INSEAD

4 years ago

Hi Searchfunders,

Looking to understand what happens in practice when the search capital is rolled into the acquisition at 1.5x the value. 
And who funds the 1.5x return if an investor decides to not invest in the acquisition (and just keep the 1.5x return)?

Thanks!

6 likes
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13 comments

searcher from Northwestern University - Kellogg School of Management

New investors enter at a premium (covering for the 1.5x step up) bc they did not assume the risk of “search” nor incurred in the costs of the search and deal

5 days ago | like reply | 0 likes

searcher from University of Virginia-Darden - Darden School of Business

One thing to note that was not clear to me up front: If less than 50% of your search cap table invests in your acquisition but it still gets funded, the acquisition investors are responsible for paying back those who did not invest for their search capital x1.5. If anyone has different experiences, I'd love to hear, but I was surprised to find this as I was fundraising for a recent deal

6 days ago | like reply | 0 likes

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