Redeemable Equity or Similar Structures?

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March 02, 2020

by a searcher from Columbia University - Columbia Business School in New York, NY, USA

Has anyone funded investor equity in his/her search/acquisition with only redeemable preferred equity or a similar structure/arrangement wherein investor equity can be contractually recapitalized/redeemed at a certain IRR/MOIC hurdle? If so, I would be interested in discussing further.

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Reply by a searcher
from University of Pennsylvania in Miami, FL, USA
the stanford primer discussed some of this - i.e. Doing 50% preferred equity @7% and 50% redeemable preferred equity @ 17% so that you can retire the redeemable piece. Like most everything else, if you can find investors who agree to it, then you can do it.


One advisor I spoke with also mentioned it was a common structure to have a higher initial preferred return - i.e###-###-#### % and then distribution flips to 75/25 in entreprenuer favor. This way, your investors continue to get upside. At some point they will want to be bought out and you can make a fair offer.
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Reply by an investor
from University of California, Berkeley in San Francisco Bay Area, CA, USA
As Jason mentioned, anything is possible if you can find investors willing to do it. It could work with friends & family type investors, but I suspect you will find it difficult to identify search capital investors on this forum who would agree to limit their upside.
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