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

by a searcher from INSEAD

3 years ago

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?

1 like
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2 comments

searcher from University of Pennsylvania - The Wharton School

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.

3 years ago | like reply | 0 likes

searcher from Stanford University - Graduate School of Business

How does the funded search w/ re-finance option work in your view?

3 years ago | like reply | 0 likes

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