raising capital for platform strategy
January 30, 2025
by a searcher from The University of Michigan - Stephen M. Ross School of Business in Portland, OR, USA
looking to the searchfunder community for guidance on the right type of equity investor for a thematic sector play that will require follow-on financing for both acquisition and growth. having positive conversations with middle-market private equity but find fund structure to be a limitation and a lack of creative thinking by way of value creation. anyone run a build-up strategy that drew on deep industry and market expertise? many thanks!
from Dartmouth College in 80 S Main St, Hanover, NH 03755, USA
a) PE funds will do it if they like it - and most can bring lots of equity to the party, and may even get you decent economics if the deal goes very well, but they'll (generally) want full control and push the independent sponsor into a corp dev type role to find the new deals -- in the upside the PE firms will likely have substantial M&A experience that is additive and may have strong operating improvement resouces,
b) many debt and equity groups can't scale as a platform "takes off" depending on your size needs and ambitions, and certainly can't scale equity - because most are primarily lenders with the ability to place some equity as well....but can be a good starting place if your initial platform is reasonably cheap, and you can raise a supplementary equity syndicate and maintain relatively more control for the most part - although you'll be subject to customary negative covenants that come with thoughtful sub debt.
c) equity syndicates (family, HNW, increasingly more orginzed and professional small equity check writers in a group) are hard to coordinate and just take time -- but much more consistent with the typical eTa raise -- and a lot of work to pull together, especially for less experienced sponsors of deals, and more complexity to sell the notion/vision of a platform vs. the typical eTa pitch. Further with equity check writers and all of the above, you also run into different preferences for smaller checks and deals, vs. scaling equity checks (ie. "we don't want to invest until it's 10M EBTIDA and the platform is working, vs. we only do 2-3M equity checks, let along $500k equity checks or less"). Family offices (and all suppliers of capital) are just all different.
So I'm not full of solutions, only identifying and empathizing with the challenge. I've seen (and/or in some instances participated) as an investor in platforms with all of the above. It's a hard raise, especially given who much the market of buyers will reward a well constructed platform that has scaled past 10M EBITDA or past 20m and so forth. There are some very good groups that focus on this type of strategy backing independent sponsors, but those that I think are among the strongest as partners can afford to be very picky and aren't at all focused on eTa community or relatively less experienced sponsors.. if you think I can be helpful, please drop me an email nick @ tuckermancapital.com Good luck!!
from Harvard University in London, UK
Not sure if any of this helpful, but happy to chat morer iif you DM me