Structuring deal terms with investors

searcher profile

February 09, 2022

by a searcher in Nashville, TN, USA

I’m interested to better understand how terms are structured with investors when raising capital for investing in your acquisition when they didn’t assist with funding the actual search.. Is there any literature that recommends common ways to structure a deal? Annual return on their investment of 8-12% + equity? How is equity % usually determined? I’ve found it really difficult to learn about this online and I don’t have a Banking background so any books, whitepapers, etc you can recommend would be great. Thanks.

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commentor profile
Reply by an investor
from Harvard University in Charlotte, NC, USA
Fly by feel man. Talk to lots of prospects if you can. Network with searchers who closed on deals to find out what they got. Whether you take SBA funding or choose to go with alternative lending formats (institutional senior lenders) will factor heavily into what you can ask for from your preferred tranche. If you can't quantify and understand how buried you are in the cap structure as the searcher, that's not a deal you should sign. Don't expect a free lunch either though. Highly capable, seasoned investors with lots of experience and capital built the hard way won't accept sitting on the sidelines if you mistreat their baby, That's not how they built their wealth. If you're fixated on how much of the pie you own (rather than the size), do a startup instead.
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Reply by a searcher
from University of Texas at Austin in Austin, TX, USA
Do some searching on this message board. This is a commonly asked question with some fairly straightforward industry investor expectations. Ultimately, some of this depends on your investor base. Professional investors in the search fund market or with access to traditional PE funds will have different expectations than Doctors and Lawyers with high levels of discretionary capital but without access to non-Real Estate private equity. There is also meaningful difference between a self-funded search and a search fund from a investor expectations perspective.

Net-net: Define your ideal investor profile based on your network, strengths, needs, etc. Then have conversations to understand market needs/demands.
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