Mitigating the Drawbacks of the Self-Funded Model
March 25, 2019
by a searcher from United States Naval Academy in Temple, TX, USA
I'm trying to learn about the various models and I'm looking to see how searchers are/have mitigated the negatives of self-funding; e.g. no proof of capital, no experience behind you, etc. Thanks for all the input.
from Babson College in Boston, MA, USA
Hi Travis, as a fellow vet and self-funded searcher both of these challenges can quickly be overcome. First, as far as the funding proof. If you were a traditional funded searcher, you would also not have any firm committed capital....your backers only provided search capital....there's actually no committed acquisition capital there, just a right of first refusal. So I recommend you find an investor/family office & offer then the right of first refusal to invest in your acquisition....in return for this right, then show a bank statement to any seller/broker that doubts that you have the "means to transact". If you need to ask more than 5 investors to get a 'yes' I'll be stunned. It's deal flow for them, for the price of a screen shot.
In terms of "experience behind you, well, just show them your resume...USNA, Nuc, John Hopkins....more likely than not you'll be the most impressive candidate to succeed the seller. Remember your "value proposition"...you're not a PE firm putting the seller into a 3 year earn-out, and you're not a strategic competitor buying a company as a "bolt-on" and intending to "synergize" 33% of the sellers employees out of a job....you are taking the place of the seller who likely doesn't have a qualified son/daughter to take over the business. You never had any direct experience in any job when you first started in the Navy, you grew into every position you had. In fact, you have a track record of doing this successfully 3-4 times already. Communicate this. You're more leadership experience than 90% of searchers out there.
Now, call me at###-###-#### or email me at redacted and I'll walk you through my intern based system for searching if you wish to hear it. Its designed for a former military officer to follow, as it draws heavily on what you already know.
Last thing, in relation to establishing the "means to transact". All brokers don't suck. This is a bad thing in the search community that we hear this all the time. Most brokers have forgotten more about doing deals than you or I will ever know. You need a broker....you need "Your Broker". Go interview dozens of brokers (I discuss this on the phone) and find "your" guy. Get a younger (hungry) guy who's part of an prominent established broker firm that get the size deals you're after. He'll still get paid by seller (~10%) but will be "your" guy that you'll show all your deals to. This broker, "your" broker helps you by reviewing all the deals out there on MLS. He also works with other brokers to get the good deals before they get listed online. This broker, "your" broker will be fully read in on the search model, and will be a believer in the model and in you (otherwise you'll pick another guy) and this guy will have "qualified" you as a serious buyer. "Your" broker will then work with other broker who own the deals you'll look at. They'll split the fee 5%/5%, but that's still good for them because they want to close deals quick and move on to new deals. "Your" broker has pre-qualified you to all sellers and other brokers. Its a broker's job to pre-qualify buyers. This process is repeat with each new broker, unless "your" broker is always involved, then you don't need to keep repeating this. "Your" broker has already pre-qualified you and now 'vouches' for you. In return for this, you have a moral obligation to ask any seller you source directly through a proprietary channel to work with "your" broker. If the seller won't then you'll need to negotiate something off to the side with "your" broker for his time....2% or more of the deal paid by you for his time helping you close the deal.
If you want to hear more, hit me up. Best, Don
from Harvard University in 1970 Walton Dr, Burlington, WA 98233, USA
The first two LOIs that I put forward listed prospective investor names as references - how long I'd known them, what their professional backgrounds were, and what there target commitment amounts were. I found this was sufficient to put both sellers at ease of my ability to fund a transaction.