Investor Deal Structure Guidance for a Self Funded Searcher
May 28, 2024
by a searcher from State University of New York College at Cortland in Suffolk County, NY, USA
Hi all - I am a self funded searcher. I will likely need to raise anywhere from 50-250k to close the equity gap in a deal. Likely this would come from friends, family or those in my personal network. With that said - I am curious to learn some examples of a typical structure and how that capital will be paid back and then distributed over time? Obviously no situation is the same, but would like to hear what others have done in this space and what is generally accepted in a situation like this?
in Asheville, NC, USA
Purchase price: $1M
SBA Loan: $800k
Seller Note: $100k
Investor (and searcher) capital: $100k
You’ll probably have to put in a token amount of the capital yourself to make the bank happy, but most can be from investors.
Also the percentage that the SBA will fund will vary, but we’re generalizing here.
The capital raised from investors will be preferred shares.
Terms:
- 8-12% preferred return
- 1x liquidation preference
- 1.5x - 2.5x step up multiple
The deal will need to pencil out to over 30% IRR in order to attract most investors (the risk of failure has to be compensated for). With rare exception I will not invest in anything if it's less than that.
The more perks you offer the easier it will be to get investors.
Having an accelerated return of initial investor capital is an important one for me. If you can return my initial investment in less than 2-3 years then I'm happy.
After you have returned the investors capital and paid off the preferred return then investors convert to common shares (using the predetermined step-up multiple).
After that investors see returns from any distributions the company does and/or on the eventual exit of the company.
If you have any questions on these things just ask, or email me at redacted
from McGill University in San Diego, CA, USA