Looking for advice or materials on self-funded financial structures

April 01, 2022

by a searcher from Rice University - Jesse H. Jones Graduate School of Business in Houston, TX, USA

Good afternoon,

Can anyone help point me in the right direction for self-funded deal structures people have used? I am working on a deal in which I will be personally guaranteeing the loan and intend to maintain a 60% - 80% of equity. This structure is a bit different than the traditional Private Equity structure that my investors are used to so I would like to see what other people have used. Right now, I am thinking amount having my investors bring 25% cash and the other 75% a loan that is guaranteed by me. If they sell in 5 years, due to the low equity proportion, the returns do not look great. Because of this, I was thinking of allowing them to recoup their investment from FCF before my 75% takes a FCF distribution. Is this common or is this giving away too much up front?

Thanks,
Cole Edwards

Reply by an investor
from University of Birmingham in London, UK

Hi Cole - as a self funded searcher with a PG for a deal which will be atleast 70% leveraged I am working under a similar structure. Would recommend structuring your investors investments as Pref Shares with a fixed coupon and equity attached to it. If your investors are contributing only 25% of total consideration and getting###-###-#### % of the common equity plus a pref paying say 8% then the IRR should certainly hit the likely###-###-#### % hurdle rate you are aiming for.

Feel free to DM me if you'd like to discuss this in more detail.

Reply by a searcher
from Rice University in Katy, TX, USA

https://www.searchfunder.com/event/view/386 and https://www.searchfunder.com/event/view/834. These 2 episodes will help you in guiding the deal structure.

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