Level of detail when asking for ‘soft commitments?’

February 13, 2022

by a searcher from University of Pennsylvania - The Wharton School in Los Angeles, CA, USA

I’m currently working toward getting in my first LOI, on a brokered deal. The broker has asked for proof of funds in order to move into exclusivity. I’m planning on putting together a short doc basically saying I have $X in soft debt commitments and $X in soft equity commitments, and giving a short description of each investor + their respective commitment amounts.

I’m a self funded searcher, and this will be my first time soliciting equity and debt providers. When requesting these soft commitments, how much information is customary to show them? Would an anonymized 1-page teaser using pre-NDA information + seller asking price be sufficient, or would they need to see a deck with company name, historical financials, thesis, etc? The dataroom hasn’t opened yet, and all I have is a P&L and a 50 page overview, both constrained by NDA. Should I also send them high level pref equity and debt term sheets too, or should they be comfortable with giving soft commitments regardless?

This is a brokered deal, so I want to move as quickly as possible and portray myself as credible as possible to the broker and seller by maximizing soft commitments. But I don’t want to go to investors with information I haven’t had the chance to fully vet or stress test through post-LOI dataroom diligence. Of course, when under LOI and formally seeking equity and debt, all diligence findings will be shared with financing providers.

Thank you!

Reply by a searcher
from University of California, Berkeley in Seattle Metropolitan Area, WA, USA

In my experience, completely dependent on the lenders/financiers. And more on an individual basis than company basis, also. Generally speaking, some have stricter policies on documentation than others, but you can try what you have one-pager-wise and shop it around. If you get terms you're comfortable with, by all means move forward. If you're blocked, see what you basic extra info may be necessary for proceeding until you can release the full docs. They should want the business but some are more stringent than others.

Best of luck. Love to hear the results.

Reply by a searcher
from University of California, Berkeley in Oslo, Norway

Hi, I've done something similar to what you describe with the one-pager. A couple of the investors were ok with showing their names and they have a good reputation so I chose to disclose these. Was enough to convince and move forward.

+2 more replies.

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