Self-funded raising funds for Due Diligence

searcher profile

January 22, 2021

by a searcher from IE Business School in Madrid, España

Does anyone know of a self-funded Search Fund that raised money for Due Diligence on a specific Deal?

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commentor profile
Reply by an investor
from University of Nebraska in Austin, TX, USA
You must have specific concerns about the company or need to hire high-end providers for some reason, because this is not typical at least for smaller deals.

Be smart about pushing off hard diligence costs and assess whether the cost is worth the output. You must make decisions about value of certain due diligence items in a self-funded search. Things like QoE, $500 an hour lawyers, outsourced research and customer interviews, are many times not justified relative to the transaction size. It's your money, so you get to decide what's valuable and spend your money on that. My largest out of pocket expense was the deposit with the lender (and it's refundable), everything else you can push off or do most if it yourself (hack it or make assumptions that you can verify later) until you are much more certain a deal will close.

Examples:
1) negotiate IOI key terms in more detail than you otherwise would to reduce negotiation, mechanics, and cost when you get to the PSA.
2) work with vendors who will let you pay after deal is closed (extending AP), lawyers do this all the time, negotiate reduced rate with them
3) don't spend money on stuff that doesn't provide value for you.
commentor profile
Reply by a searcher
from Carleton University in Calgary, AB, Canada
We have looked at funding diligence costs for searchers in the past, and we'd be open to discussing it with you. But, for us it really depends deal-by-deal. We have to really like the deal, and obviously would receive a step-up on our costs towards equity in the deal if it goes through. Feel free to email me redacted and we can chat further.
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