How much does the average searcher invest of his/her own capital?

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January 22, 2020

by a searcher from McGill University in Toronto, ON, Canada

Are there any stats on this?

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commentor profile
Reply by a searcher
from Pennsylvania State University in Atlanta, GA, USA
I can't speak to the incentive structure for searchers specifically, as I am new to this world. However, using a traditional PE company as an example, the 25% equity would come via management incentives, which would impact your total diluted shares, but not your basic. Therefore, if you are buying 1/3 of the common upfront, you would own 33% of the basic shares. This ownership would then be supplemented with incentives worth (to your example) 25% of the total diluted shares. Your initial investment (along with that of your other investors) would be diluted by these incentives, thus bringing your combined ownership to ~50% of the fully diluted shares. To the extent that it works differently in a search fund, I would definitely be interested to learn more.
commentor profile
Reply by a searcher
from Carnegie Mellon University in Boston, MA, USA
A related question - I assume that if you ran a solo traditional search earned ~25% equity through your management role, but that you also contributed a part of the equity capital then your total stake would scale?

Strictly for example, in that world where you had a PPM that allowed you to earn up to 25% of the common, but you contributed 1/3 of the required equity, then you would ultimately have 25% through your mgmt role and 25% (1/3 of the 75% remaining) as an equity contributor?

That makes sense to me but academically I haven't heard of anyone describe it this way explicitly.
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