Covering costs in search fund fundraising period

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by a searcher from University of Virginia-McIntire - McIntire School of Commerce
in 400 South St, Philadelphia, PA 19147, USA

6yrs ago

Covering costs in search fund fundraising period

I'm considering launching a traditional solo search fund, My understanding is that fundraising for the search fund itself may take as long as 6 months (~3 sounds more common.) I'm in a stable financial situation, but 3-6 months' lost income would definitely leave a dent.

I have a few questions around how searchers managed cash burn during this fundraising period:

What tactics, if any, have other searchers used to cover the costs of fundraising and any legal, travel, or other expenses incurred throughout the process?
Is there precedent for searchers considering this time investment "sweat equity," earning themselves a unit in the fund?
Is the process time intensive enough such that picking up freelance work or consulting income is a bad idea?

Appreciate any thoughts or feedback. Thanks!

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reply by a searcher 6yrs ago
from Carnegie Mellon University in Chagrin Falls, OH, United States

FWIW, I did not raise a traditional fund (took a different path), but I did start the process. I quit my job before I had any funding lined up. That was a scary 2 months, even though I was pretty confident it was going to work out (see first point below).

You can do a lot of the legwork while still employed. Write your PPM, do your industry research, talk to dozens (yes dozens) of searchers about their fundraising process, and so on. These things are time consuming, but you should be able to do them part-time. You can even do some calls/meetings with the people you want to raise funds from, but you'll want to proceed cautiously. Some folks only will make time for one meeting, so don't blow your chances with them. Still, you can start to get some feedback and maybe even some soft commitments. If you are getting good responses and people seem interested, you'll be in a better spot to pull the trigger on quitting. I'd say I was 80-90% confident that I would get funded before I actually quit my job, even though I had no commitments yet.

I cannot imagine that anyone would be OK with you taking a unit in the fund for doing fundraising. Lots of other people have been through this and it would be a big departure from standard practice.

I think you could definitely do some freelance or consulting work. Fundraising is time intensive, but there will be times when you are waiting to hear back or will have a gap between meetings. Per point 1 above, I would do as much of the prep work, modeling, writing, industry research, etc. as you possibly can before quitting your day job.

reply by a searcher 6yrs ago
from St. Francis Xavier University in Toronto, ON, Canada

1) What tactics, if any, have other searchers used to cover the costs of fundraising and any legal, travel, or other expenses incurred throughout the process? I did not start fundraising until I had a PPM complete + other marketing materials + preparation well thought out (including speaking with 30+ searchers - who were all extremely helpful) and was ready to spend 100% of my time speaking with / meeting investors. I anticipated a 3-6 mo. Period but took 8 months start to completion. The only raise costs that I reimbursed were infrastructure costs for our CRM and workspace rent. Be disciplined with your spending, and start talking with many searchers...

2) Is there precedent for searchers considering this time investment "sweat equity," earning themselves a unit in the fund? I have not heard of anything here and highly doubt it. However, if you have any unit in the fund (invested or sweaty equity), you should be prepared to explain to your investors why, and that you plan to, and have the ability to invest in the ultimate acquisition up to your total pro-rata share. Unit sizes should correspond with ability to invest to decrease risk of getting funded at deal time.

3) Is the process time intensive enough such that picking up freelance work or consulting income is a bad idea? I decided to leave my previous role to fully commit all my time to the ETA path via traditional search fund. I considered this early on (before and during early raise) and felt it to be very distracting. If you are doing this, you create a greater risk of having an unsuccessful raise; and may risk 'over committing and under delivering' on any of your freelance work.