Purchase vs Partner and How to Structure?

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by a searcher from Harvard University
in Cambridge, MA, USA

1yr ago

Purchase vs Partner and How to Structure?

Hi Searchfunders —

Self-funded searcher here very interested in manufacturing. I did an outreach to owners of architectural millwork + custom cabinetry businesses last week resulting in (so far) 6 calls with owners. What I’m finding thus far is that owners are more interested in a partnership than sale, and this might be an interesting arrangement for me too, a way to derisk this process. Some more detail:

The companies have $1m - $2m in revenue, minimal marketing and systems but (so far) solid technical/woodworking teams. Only mildly profitable but room for growth. I would bring tech, financial, and people skills, decent familiarity with the domain (woodworking + residential construction), and would hope to add significantly to the top and bottom lines.

I’m open to a partnership where I’d work alongside the owner for sweat equity and eventual buyout. (Lest anyone wonder, I am temperamentally ok with this and have been around the block/likely have the maturity to navigate this). Any thoughts on how to structure such a situation? Has anyone seen or explored such a thing before?

Thanks in advance for any insights.

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reply by an investor 1yr ago
from University of Witwatersrand in Johannesburg, South Africa

I structured a partnership for a similar situation.

It was for a retailer who launched an eCommerce platform.

In summary what I did was structure a "pilot" period - say 6 months with a defined goal or milestone.

Clear roles and responsibilities as well as commitment to funding marketing/growth/ systems is a must.

Clear profit share/participation during the pilot, post pilot for both upside and downside scenarios should be agreed from the beginning.

Once the goal is achieved, this triggers a more formal arrangement or structure based on mutual objectives.

By doing it this way, you can get started fairly quickly, and test whether you can actually improve revenue/ cost efficiencies before committing too much time/capital.

Hope this helps, happy to chat further.

reply by a searcher 1yr ago
from Harvard University in Cambridge, MA, USA

Thanks ^redacted‌. I like this structure, with the goal of testing whether I can actually improve revenue/cost efficiencies before committing too much time/capital. Really appreciate.