What about a quasi-funded search?

searcher profile

July 10, 2020

by a searcher from University of Southern California in Orange County, CA, USA

Probably a more appropriate name for it, but have any searchers pursued what I’ll term a “quasi-funded search,” e.g. funding your search via non-institutional investors who do not plan to participate in the acquisition capital raise? In this case the search capital would convert into the deal based on acquisition capital terms at a stepped up basis. The main potential benefit would be that the searcher could potentially negotiate more attractive terms on the acquisition capital with investors who did not fund the search.

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commentor profile
Reply by an investor
from Northwestern University in Tampa, FL, USA
As Mark said, we would view this as a self-funded search. We would be interested in seeing the deal. Keeping the search capital as small as possible will help when you structure the transaction. Your acquisition equity partnership will be paying for the search equity + step up, so smaller is much easier.
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Reply by a searcher
from Southern Methodist University in Sarasota, FL, USA
Following this post intently, as I have been racking my brain over a similar type of setup (even looking at the tradeoff of self-funding a search with personal loan or business credit cards - seeing as that debt/rate would still be preferable to giving up equity)
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