Model/guidance to assess whether to raise investor $ for self funded search

by a searcher from Northwestern University - Kellogg School of Management

3 months ago

I'm early in the self-funded search process (planning to go the ~90% SBA route). I'm trying to think through the financial trade-offs of fully self-funding the down payment on a smaller deal vs doing a larger deal and raising some investor $ for the equity down payment. 

Anyone have any sort of excel model template or guidance on how to to think through this decision? I'm particularly trying to figure out the best way to model out the "raise money for a larger deal" portion of this...assuming typical "market" terms from investors

I understand there's other non-financial considerations as well, which I am definitely wanting to consider. Feel free to chime in if you have anything to add there, too! Specially on how to think about risk trade-offs

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searcher from University of Florida

Thanks Luke for tagging me. I think it comes down to what you can afford in a downpayment. At a minimum, you need 10-15% cash to close a deal financed through the SBA, and more if you use a conventional loan for a company with >$2M EBITDA. Then, the rest will be financed through some combination of the loan and a negotiated seller note. If you want a bigger company where you cant afford the full downpayment and are ok with taking investor money to close the gap, giving up equity, and the SDE meets your lifestyle requirements, then I would do it. If you want retain 100% equity and control and dont want to pay an investor alot of money compared to what they actually put down, then buy a smaller company without investors where you can afford the downpayment.

1 month ago | like reply | 0 likes

searcher from INSEAD

https://bigdealsmallbusiness.substack.com/ has some great reading + free models for use.

1 month ago | like reply | 0 likes

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