SDVOSB Ownership and Private Equity Investors

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by a searcher from Adler School of Professional Psychology
in Marysville, WA, USA

1yr ago

SDVOSB Ownership and Private Equity Investors

Hi everyone! I'm looking at an acquisition target that relies on the seller's service-disabled veteran-owned small business (SDVOSB) designation for the bulk of its revenue. My business partner is a service-disabled veteran, so we could maintain that designation, but he would have to own 51% of the business. Given the size of the business, we would absolutely need to raise capital from outside investors. If we are unable to find an investor who is also a service-disabled veteran, does anyone have an idea of whether it would be possible to structure the deal in a way where my business partner retains 51% ownership to maintain the SDVOSB designation? The obvious answer would be for him to put in a significant portion of the capital, but unfortunately he doesn't have the personal balance sheet for that. Creative ideas are welcome, as are connections to service-disabled veteran-owned investment firms!!

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reply by a searcher 1yr ago
from University of Pennsylvania in Seattle, WA, USA

Not the question but also consider that this will limit who you can ultimately sell the business to or could complicate your operations if something happens to your partner (breakup, death, etc). I have passed on quite a few businesses that have favorable contracting due the background of the owners that either couldn't be continued by me or would make a future sale challenging. You could consider making a personal loan to your partner so he has more capital for the equity and then set an interest rate that makes you whole. Not vanilla but might be doable.

reply by a searcher 1yr ago
from Adler School of Professional Psychology in Marysville, WA, USA

Great point about the salability of the business down the road. Probably why this particular business has been on the market for so long, despite its operational and financial strength!