Right timing to sort funding for self-funded search

October 11, 2024

by a searcher from Fachhochschule Pforzheim, Hochschule für Gestaltung, Technik und Wirtschaft in Ulm, Germany

Dear community,

in the last weeks I had quite a lot of 1-on-1s with many of you. It was such a pleasure to meet and get to know all of you.

What came up again and again is the right timing to sort funding for a self-funded search. In my opinion/ experience it is really difficult to get funding in place quickly and if you do the conditions are often (let's call it) not ideal.

I usually recommend people to plan with 3-6m of lead time. But more than one of you had shared back with me, that they need the money quicker.

What do others think about this timing question?

Really curious.

Ali

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Reply by a professional
from York University in Toronto, ON, Canada

The search process isn't just searching for targets, it's also searching for investors. If you wait until LOI is signed, it's usually too tight of a timeframe to get funding commitments and close the deal.

Recommend getting at least soft commitments as early as possible (soft commitment = "I'm interested in investing $X-$Y as long as I like the deal").

Then refreshing those soft commitments once every 3 months ("Hey just wanted to update you and let you know that [provide progress report]. I want to make sure you're still interested in doing a deal when I have one under LOI."

You don't want to be in a situation where someone provided a soft commitment a while ago, they haven't heard from you, and their capital is now tied up elsewhere.

Reply by a professional
from University at Albany, State University of New York in Delray Beach, FL, USA

Hi Ali, I partner with entrepreneurs who believe they can acquire enough profitable businesses to get to a $100+ million valuation over the next 7 to 10 years. As part of my process, the entrepreneur raises enough capital to complete their first acquisition before starting their search. There are several reasons for this. The most important is that there's no point spending months searching for an acquisition, structuring terms, doing due diligence, and signing an LOI, only to discover that any gap funding can't be secured on reasonable terms or in a timely manner. Therefore, my recommendation is to raise any cash required to close your first acquisition before starting the search process.

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