Any creative ideas on how to make up equity investment gaps?

searcher profile

October 14, 2020

by a searcher in Loudon, NH, USA

What sort of terms and/or deal scenarios are you seeing when it comes to equity gaps? As a self funded searcher, I have limited capital to invest in the equity injection and for DD costs. I'm curious for someone like me to consider larger deal sizes, what options are out there being self funded?

Do you ever see individual investors putting up some capital in exchange for a fixed return on their investment instead of equity? (more like a short term loan) I would think with enough EBIDA, you could pay that back fairly quickly but maybe in practice, it doesn't work that way.

My personal capital limits me to 'upper Main Street' deal sizes that in many cases, are buying a 'job' vs. lower middle market companies that have more stability and I'm trying to see what options I may have to move more upstream in terms of deal size.


Thanks.

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commentor profile
Reply by a searcher
from Universidad Internacional del Ecuador in Cuenca, Ecuador
I would suggest a different route: stop looking for larger deals and instead focus on doing a small "buying a job" deal that your current financial position allows you to. Look for companies in the service space (business or consumer) in a fragmented industry with good growth prospects where you can do roll ups in a relatively short period of time and with little to no money down. You may be buying yourself a job for several months or 1-2 years, but if you go in it with the end goal of buying many small competitors, you'll create a much larger company for yourself and be able to delegate the day-to-day work. Happy to discuss this further.
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Reply by a searcher
from Dartmouth College in Burlington, VT, USA
I don't know someone that's used this in ETA specifically, but I had a conversation with an economic development agency in NH that will enable loans on 5% equity positions. They've done it on asset purchases. Less clear if they'll do it on cash flow. Loan officer brought it up in the context of ETA, though. Seems worth exploring with whatever agency is local to your deal.

http://www.ncic.org/the-95-partnership-program/
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