Does anyone have MOIC and IRR targets for investors?

November 25, 2020

by a searcher from Emory University in Atlanta, GA, USA

I'm putting together a model to determine the size of company I would like to purchase. I'm wondering if anyone has any experience on what return investors are looking for with ETA type investments. Is there a good range and minimum investment size investors are looking to make?

With the equity I can put down, I'm looking for a small investments of ~$50-150k from investors and trying to determine what's a reasonable assumption for how much equity they would want in a 650K SDE business.

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Reply by a searcher
from Duke University in Fairfax County, VA, USA

A late reply to an interesting post with already a lot of engagement, but I have heard it said that many searchers end up in a no man’s land where the business has basically become a glorified job. It’s not a home run and it’s definitely a failure, the loan has been paid off but it’s not going to sell for 10x. I suppose this is more true for self-funded searchers who don’t really have the time pressure of search funds that have to return capital to investors. Yes, it’s not easy. We have to go into this with eyes wide open!

Reply by an investor
from WU Vienna University of Economics and Business in Vienna, Austria

I agree with Steve, 35% is usually threshold for the performance based tranche of the searcher's equity to vest. However the holding period is a critical aspect of this, I can say that for us a (somewhat) lower IRR, but a higher MOIC due to a longer holding period is preferred. Quick flips can look great on paper with high IRRs, but if I factor in our redeployment cost, they are usually not so great....

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