I’m building a private equity fund for the first time

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September 13, 2024

by a searcher from University of Central Florida in Orlando, FL, USA

Hey all - I’m building a private equity fund for the first time.

This is new to me, but it has elements of search fund while also having a larger focus. To be specific, we are either looking for deals that come with a management team that will stay on (which we would acquire with private equity capital), or deals that would allow a competent and partially funded operator to come in with a small investment alongside the remaining capital needed make the acquisition (which would come from private equity).

Does anyone have experience with a flexible structure like this, where there are options to do either one? I have mostly heard about people doing one or the other, but we like the flexibility it provides, and we know a lot of people looking to buy a business that are not well funded enough and want to benefit from the experience and connections and resources we provide as established entrepreneurs.

Any advice would be appreciated - thanks!

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commentor profile
Reply by a searcher
from The University of North Carolina at Chapel Hill in Atlanta, GA, USA
If you can find the investors to back you, there will be a lot of opportunity to place the funds. Deals with about $2mm of EBITDA fall in a weird zone, both from a debt and equity perspective, where they could be self funded search deals or independent sponsor deals. The searchers/sponsors are not sure which path to take. While I’m seeing more traditional PE start to move down stream, a more direct solution, like what you are proposing, would be attractive. If any others are aware of funds already doing this, I would love to learn more.
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Reply by a searcher
from Fordham University in New York, NY 10025, USA
I've worked with a family office that is flexible in this way. One thing to be careful about is the legal cost side of it. Acquisitions are straight forward, but be sure that your follow on capital deal is standard and straight forward. Getting fancy with the terms means legal time, and that means cost. At these deal sizes, a runaway legal costs eats significantly into the your investment gains, but the wrong deal makes it harder to extricate yourself.
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