Search fund and employees' pool

searcher profile

May 13, 2023

by a searcher from INSEAD in Paris, France

Hi there,

How does the employees" pool work in the case of search funds after acquisition? Specifically: who gets diluted and who doesn't? If anyone can share illustrative figures, it would be helpful.


Cheers

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commentor profile
Reply by a professional
from Dartmouth College in Los Angeles, CA, USA
If the equity pool is at the operating company level, all investors are diluted equally, which is typically why creating such a pool requires an elevated voting standard for approval. But the investors still have their preference which will get paid before any employee equity. In the VC context typically they will require an equity pool reserve up front for the startup, which dilutes only the founders and existing investors before they come in on top of that, but I haven't seen that in the search fund context.
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