Self-funded search equity terms

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by a searcher from IESE Business School
in Vancouver, British Columbia, Canada

1h ago

Self-funded search equity terms

Hi all, does anybody have a good primer on typical self-funded search equity terms? I understand terms are negotiable, but I'm just trying to understand typical terms as a starting point. I heard on a podcast that Searchfunder has a wealth of knowledge on this topic, but I've yet to find anything. Thank you!

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reply by a professional 1h ago
from University of Saskatchewan in Calgary, AB, Canada

Hi Alex, what I typically see is a combination of paid preferred equity separated from searcher sweat equity, different classes of common equity, or sometimes just straight common. Depending on cheque size, there are different items worth considering. Happy to discuss more if you want to shoot me a note redacted

reply by a searcher 49m ago
from United States Military Academy in Earlysville, VA, USA

Most self-funded searchers think about investor equity terms and then back into what their terms pan out to be. Investors need to see ~30% IRR. Step-up, growth assumptions, % of debt, pref rate all function to toggle a model towards that hurdle rate. Any equity you bring to the table sits alongside investors as preferred. The senior debt that you PG and any junior debt is your common equity as it's paid down. Normally, self-funded will yield you 70-90% equity (mostly common/at the bottom of the stack). Be aware that some investors will try and convince you that aredacted5x step up is table stakes- this is incorrect. You are giving away more equity than is necessary. The step up is a tool to hit 30% IRR/to compensate them for the risk inherent to the model.