I've had an opportunity come by my desk where I might be able to provide value solely as a capital and financing source, while a partner handles business operations.
Noting upfront that this would not be a traditional search fund deal: the partner is not an inexperienced or capital-light operator looking for an initial industry foothold. Rather, this acquisition would expand the partner's existing, successful portfolio of related businesses. Partner has both geographic proximity to the acquisition target and deep experience in the industry. I have no doubt that this partner could double the cash flow of the business within two years. Given this partner's existing successful operations, they don't need this acquisition - it's an opportunistic acquisition target given a local, retiring owner.
Thus, we'd need a deal that is fair and incentivizing for both parties, and I don't expect a traditional###-###-#### model would provide sufficient partnership interest. Nor would a salary alone - with no upside to be had from discretionary earnings.
With all of that context given: how have you all successfully modeled a split in ownership that balances capital dedication and time dedication?
Capital is easy, because it's a one-time investment. Operations work is harder to attribute because it involves effort over time: a###-###-#### split isn't fair if the operator either departs quickly or doesn't execute well, but there must be some point in the future at which the operator also reaches a full "share" of ownership and upside.
I recognize that the short answer here is: "whatever works for you and your partner!" and that's where we ultimately need to land. What I'm seeking here, if you're willing to provide, is examples of successful models you've experienced in partnership deal terms!
Partnership Agreements: Capital versus Operations
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