Absurd Broker Gate Keeping - Asking for $1.5M proof of liquid funds

December 29, 2024

by a searcher from University of California, Los Angeles - UCLA Anderson School of Management in Los Angeles, CA, USA

I was met with some hard gatekeeping today on a $1M SDE deal with an asking price of $2.5M:

"To qualify for this opportunity, the potential buyer must have at least $1.5 million in liquid assets and $4 million in total assets. Please provide proof of funds showing at least $ 1.5 mil of liquid assets."

Is this a joke? Unless the seller is looking for cash, why would he ask for this? Any suggestions on how to politely respond? I don't have that much liquid funds but can raise if necessary.

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Reply by a searcher
from California State Polytechnic University in Los Angeles, CA, USA

I looked into this last month and found a few helpful posts on this site with guidance on handling these kinds of situations. Ultimately it's up to the individual searcher how to handle it and it depends on where you are in the process. The links to the posts are below. My approach is to respond professionally letting them know of 1) the search model and its nuances and 2) that I can provide letters of support after I have had a chance to see a CIM and/or get access to a data room with more information. Meaning, I would give them the LOS docs along with my LOI. I like to create my own CIM based on the information presented and after getting some key questions answered. I then take that "internal CIM" or pseudo investment memo and present to my investors. If there is interest, I ask for a LOS as a way to keep the ball moving on the deal and come back with any next steps. Similarly. Another way (as others mentioned) is to build that relationship with a lender and get an LOS. My approach may not work for everyone and I think some of it is rooted in one principle or the other.

At the end of the day. I see both sides of this coin and can relate to why brokers ask and why searchers may not be a big fan of it. I feel like the saying "live by the sword die by the sword" is applicable here. Minus the violence part obviously. Basically to say, for both parties, its something you have to define what's best for you and push ahead with conviction. Challenges, hurdles, and roadblocks will always present themselves. Its how we deal with them and move ahead that counts. Hope this helped.
Links: 1) https://www.searchfunder.com/post/brokers-and-proof-of-funds 2) https://www.searchfunder.com/post/proof-of-funds 3) https://www.searchfunder.com/post/dealing-with-proof-of-funds-before-revealing-detailed-financials 4) https://www.searchfunder.com/post/inquiry-on-proof-of-funds-requests-from-vendors 5) https://www.searchfunder.com/post/seller-asking-for-proof-of-funds 6) https://www.searchfunder.com/post/intermediaries-requiring-proof-of-funds-from-unfunded-searchers 7) https://www.searchfunder.com/post/proof-of-funds-gatekeeping 8) https://www.searchfunder.com/post/proof-of-funds-comfort-letters-on-self-funded-searches

Reply by a searcher
from State University of New York at Stony Brook in New York, NY, USA

I've seen this when the seller has been previously burned by financing contingency resulting in dead deals and as a filter to weed out wannabe (but not serious) buyers. Usually getting the broker on the phone and telling them about you, along with some confirmation of backing (letter of support, financing, equity capital raised, access to funds) is enough for them to make the call, or go back to the seller if they're the ones behind the contingency to get you in the room.

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