I wrote on LinkedIn about an experience I had this week talking to two searchers buying a $4m+ EBITDA business who led with the risks on their business. This was new - nothing buried, no footnotes to "catch"; instead, their deck had multiple slides to highlight the risk factors and their concerns with the deal. Big, bold titles called them out. They also shared how they were working to address these risks, and how they'd constructed the capital stack to add forgiveness should the business face a major economic pullback - crucial for earning investor trust. We see a lot of deals each week, both for Entrepreneurial Capital and for Main Street Capital Network, and it's shocking the number of decks that don't want to call out risks - as if by not highlighting them, we might not find them, and they'll magically go away. In reality, every deal has risks, and every investor (and searcher) has a different risk profile. If you're honest about what your deal's risks are and how you plan to address them, you may be surprised at how willing investors are to share in those risks you. On the flipside, if you're not upfront about them, I can almost guarantee that discovering those risks later will erode trust and take away whatever risk appetite was there in the first place. Partner Perspective: Eli Albrecht, Albrecht Law: What Happens When the Seller Was Wrong? Survival, Caps, and Baskets Explained One of the most important - and most negotiated - parts of any acquisition is a question that nobody wants to think about at signing: what happens if something goes wrong after closing? In M&A, a buyer has to rely on the seller's representations and warranties to buy the business. When one of those turns out to be false and causes a loss, the seller is generally on the hook. But sellers have developed three tools to limit how long they're exposed, how much they can owe, and how small a claim has to be before it even counts. Survival is how long the seller's representations remain actionable after closing. The market has settled around 12 to 18 months for non-fundamental representations, and the statute of limitations for the critical ones like taxes and ownership. I'd push for longer wherever possible. Caps limit the seller's total liability. Market data from larger deals puts the median cap at around 10% of transaction value - but I'd argue that number makes far more sense for a $250M deal with audited financials than for a $5M business running on QuickBooks with three big customers. Baskets set a threshold that losses have to clear before a buyer can bring a claim at all. The standard is a deductible basket of around 1% of purchase price, but deals with no basket at all have grown from 19% to 28% since 2022, which I think reflects a more appropriate allocation of risk. I've been increasingly arguing for survival until the statute of limitations with no caps and no baskets on smaller deals - and putting that position in my LOIs. I wrote up the full reasoning, along with a real deal example where all three tools came into play, here. And if you're negotiating an LOI or purchase agreement and want to talk through where to set these terms, reach out at redacted Plus: - You hear from him in our monthly partner perspective - now come hear from him live. Join me and M&A Lawyer Eli Albrecht on September 30 at 12 ET for a webinar on the nuances of acquiring a blue collar business. We’ll draw upon a recent acquisition we worked on together, and share practical advice for searchers. RSVP here. - SMB Broker Jackie Ossin Hirsch makes an important point that often gets missed: a profitable business can still be difficult to sell at the owner's number, and the J-curve is usually why. Deferred maintenance, missing systems, and postponed improvements all have to be funded out of the same earnings the buyer is being asked to pay a multiple for - and the good news is that the shallowest J-curve belongs to the business that needed the least work going in. Full post here. - We’ve shared about the incredible success of searcher Rob Brooks before (in the first year of owning his HVAC business, he did 2.4x revenue and 5.8x profit with marketing spend nearly flat). To hear more of Rob’s story, his Acquiring Minds episode is worth a listen. Question: Hit reply and tell us - If you’ve bought a business that came with meaningful risk, how did you earn trust with investors?redacted