When do investors pay the search phase funds? Once off or in tranches?

Howard - happy to keep the exchange going here or direct. But the norm is as Thomas mentioned above: All upfront, all stepped-up and any unspent funds is used to help finance the transaction or cover deal costs (or both!).

May seem onerous on the Searcher, but here's why: it's a relatively small cheque per investor if going the traditional route with###-###-#### investors, so most investors want to 1) just get the admin done and pay the USD50K or so in one go. Paying that in 8x tranches at ~USD6k a piece x 15 or so investors, is a lot of admin hassle that you and your bankers need to go through. 2) investors are putting money to work, they ideally don't want to have "committed" capital earmarked that's earning <1% that they can't use for anything else, given that they need to have that cash ready when you call for it. It makes portfolio planning and deployment dynamics difficult if doing this over 30+ searchers across a portfolio from the investor's perspective. Lastly - you don't want to be dealing with drawdown admin or any concerns that an investor may have trouble contributing say 6 months in, and then being worried about your own burn being covered, and changing the dilution mechanics etc while still in the Search phase. You'll be busy enough dealing with Owners, Deals and interns - just not worth your time or energy.

Hope that helps to not just give an answer, but also why it's more practical from a funder's perspective (and probably a Searcher's perspective too). As Paul mentioned, the real game is more post deal, where quick exits and cash backs can help drive IRRs (sometimes) on much higher numbers relative to the smaller Search-stage cheque.

I think I was the only searcher who did it in 2 tranches (so the second one in the second year). I ended up doing a small equity check in the first deal and when I look at the ultimate IRRs it was helpful (in that part of what you get as equity is usually tied to IRRs). Its somewhat a mindset. Its an irrelevant amount if you believe you are going to be Asurion, or you are going to find a deal fast and then sell it fast. But if you are going to operate over a number of years, the amount of time you have actual equity at play for counts. That's also why re capitalization with debt early in the life of the deal also helps the IRRs. I spent maybe 75% of the money (I actually used the 'salary' part to travel and try and find deals - but I guess it was a different time). then the remaining 25% I used up in the lawyers fees for the deal.