Self-funded search vs. Funded search w/ re-finance option?

searcher profile

November 09, 2020

by a searcher from INSEAD in Sydney NSW, Australia

Hi all,

I have been looking at a self-funded search for purposes of greater equity and control, but some obvious limitations to this are access to lower deal sizes (buying job vs. company), financing my own search via savings, potential lack of advisors, etc.

The funded search helps with these but at the cost of relinquishing significant equity.

I've been wondering if, perhaps, the best of both worlds would be to have a funded search but re-finance investor equity via debt (and cash) 3-5 years in? This would allow one to de-risk the investment because:

- You'd start with a larger business with stronger margins
- Get 3-5 years in before raising significant debt making it easier to convince the banks
- Not take on the risk of significant debt on Day 0 based solely on a due diligence

Keen to hear your thoughts and experiences with taking this route/ rationale?

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commentor profile
Reply by a searcher
from University of Pennsylvania in Miami, FL, USA
It all depends on what you negotiate with your investors. Generally they don't like upside to be capped. You could also just offer to buy them out in 3-5 years. Have a 50% agreement threshold and everybody has to sell....many will take it so long as the return is fair. Most are not interested in holding beyond that period anyway.
commentor profile
Reply by a searcher
from Stanford University in Paris, France
How does the funded search w/ re-finance option work in your view?
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