Unused Search Capital

by a searcher from Stanford University - Graduate School of Business

3 years ago

Hi all - 

Question about search capital committed but unused - suppose a hypothetical situation where a searcher raises $400k to fund a 2yr search, but an acquisition is executed after 6mos. Over those 6mos, $125k of the search capital is spent. How is the remaining $275k of search capital treated? Is it treated as equity contributed by the searcher in the acquisition? Does the searcher keep it? Is it required to be contributed as equity in the acquisition?

Any thoughts on this topic would be great!

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7 comments

searcher from ESADE - ESADE Business School

It should be treated as investors capital and reduce the capital increase for the acquisition. Investors won't accept it as an extra remmuneration for the searcher, as you should already have the incentive to maximize investment returns with the common searcher remmuneration scheme

3 years ago | like reply | 0 likes

searcher from Stanford University - Graduate School of Business

You can prenegotiate this with investors, but i understand most want this to be treated as investor capital, subject to the same conditions as the capital you have used. It just becomes extra liquidity in the business or to pay closing costs.

3 years ago | like reply | 0 likes

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