Question about investing taboos...

searcher profile

August 28, 2024

by a searcher from Liberty University in Austin, TX, USA

I'm considering investing in a deal (so not a searcher in this case) and I'm curious if I'm asking taboo questions. The executive team in the CIM is an independent sponsor and an operator. However, the setup looks odd to me (though I'm admittedly not well educated here).

The sponsor won't own the business — the operator will. And most of the funding (over 80%) is coming from an SBA loan that the operator is taking out.

My read on the situation is that the sponsor is maybe a consultant helping to get the deal closed in exchange for cash and maybe some equity, but won't have much skin in the game post-close (only upside).

Is there anything wrong with asking specific questions about how much personal cash each person is committing to the deal?

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commentor profile
Reply by a searcher
in Austin, TX, USA
Seems reasonable to ask...we are always asked how much we are personally investing. I would view the operator as the management team getting the MIP pool, and the IS as the sponsor here. Very typical. Try to make sure promote is not all vesting and mostly performance based.
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Reply by a searcher
from Portland State University in Fort Lauderdale, FL, USA
Same here. You should be able to ask all questions and the see the cap table as well as any distributions before/after exit. Seems like the IS is the syndicator; typical structure with the exception for the operator taking out SBA, though it's not odd.
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