Self-funded vs. funded searcher economics?

February 14, 2021

by a searcher from Ivey Business School at Western University in London, UK

Is there a rule of thumb for searcher economics between the two models? I know it can vary widely but curious if there's an "accepted" industry minimum for a self-funded deal, or if it truly just depends on the situation.

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Reply by an investor
from Harvard University in San Francisco, CA, USA

Hi Will - great question. Happy to chat in more detail if you’d be interested, but the key (and often overlooked) variable is the size of the deal. Specifically, deals where self-funded searchers end up with a big chunk of the common equity are typically only possible when the deal is considerably smaller than a traditionally-funded deal. When the size of the deal starts to look more like a traditional search deal, the economic split starts to mirror those of traditional deals.

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Reply by an investor
from University of California, Berkeley in San Francisco Bay Area, CA, USA

The difference with bigger deals is that you have more optionality as a self-funded searcher. There is a large number of potential capital sources once you have a deal with > $2M in EBITDA. You can talk to a lot of investors and find the best fit for yourself. The other big difference is control. With the self funded model you can usually keep control of the company if you go with SBA financing. With the traditional model, you are essentially an employee working for your investors.

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