Terms for preferred equity in search deals

Self-funded search financing has been coming up a lot in conversations recently so figured I would share this here. There's no single standard for how to structure these deals but most term sheets land in the same neighbourhood: - Investors get their money back first in the form of a 1x liquidation preference - On top of that, an 8-10% preferred cumulative dividend that usually accrues until exit - Above those two layers, investors participate in the equity split as though they held common shares The searcher gets paid to operate the business + the equity they put in + performance shares that vest if certain financial hurdles are hit (like a MOIC or IRR target). That's the skeleton structure. The real work is fitting the deal to the people involved. Sophisticated investors will negotiate hard on points like the dividend and the performance shares. Less experienced investors like friends and family often don't know what to ask for which puts more responsibility on the searcher to put forward terms that are fair on their face. Again, this is just a baseline framework to work off of and there's a lot of creativity and latitude when structuring deals.