Fundraising - oversubscription

February 14, 2021

by a searcher from Harvard University - Harvard Business School in San Jose, CA, USA

Hi:
The fundraising of my deal went quite well. I am starting to think about the oversubscription. I am wondering how you deal with this. Some investors might change their minds during the capital call. Shall I raise more than the target to offset this scenario? If so, how much more? What if no one cold feet during the capital call?

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Reply by a searcher
from Stanford University in Paris, France

Treat your investors how you would want to be treated. To me, this means you continue ongoing conversations with incremental investors, while being upfront about where you are in raising the capital. Being transparent and long-term relationship focused is particularly important as you will face the same issue again as you raise money to fill the equity gap for your acquisition. The most obvious targets for that will be the investors who liked your story but for whom you had no search fund units left. In some cases, they may actually prefer the flexibility to come in at the equity gap stage.

Reply by a searcher
from Carleton College in Leesburg, VA, USA

You may have to go back to your investors, explain the potential “problem,” and ask if they would still be interested if their deal share is smaller. Or maybe they already have other creative solutions for such circumstances?

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