SDVOSB Ownership and Private Equity Investors

April 22, 2025

by a searcher from University of Minnesota - Twin Cities Campus in Marysville, WA, USA

Hi everyone! I'm looking at an acquisition target that relies on the seller's service-disabled veteran-owned small business (SDVOSB) designation for the bulk of its revenue. My business partner is a service-disabled veteran, so we could maintain that designation, but he would have to own 51% of the business. Given the size of the business, we would absolutely need to raise capital from outside investors. If we are unable to find an investor who is also a service-disabled veteran, does anyone have an idea of whether it would be possible to structure the deal in a way where my business partner retains 51% ownership to maintain the SDVOSB designation? The obvious answer would be for him to put in a significant portion of the capital, but unfortunately he doesn't have the personal balance sheet for that. Creative ideas are welcome, as are connections to service-disabled veteran-owned investment firms!!

Reply by a searcher
from University of California, Berkeley in Washington, DC, USA

I've heard its difficult to do set-aside based acquisitions if the buyer doesn't fit the set-aside, and also isn't fronting a lot of capital or going the SBA route. With that said, I believe some set-aside contracts are able to continue through the transaction. Others, like 8(a), terminate at time of transaction. An actual expert should opine, but it is a tough area to navigate. Especially if partnered and taking external capital. Last potential wrench - like above, check with an actual expert, but a investment/fund manager who who fits the set-aside category may not be enough to qualify if all of their LPs and sources of capital don't also fit the category.

Reply by a searcher
from University of Pennsylvania in Seattle, WA, USA

Not the question but also consider that this will limit who you can ultimately sell the business to or could complicate your operations if something happens to your partner (breakup, death, etc). I have passed on quite a few businesses that have favorable contracting due the background of the owners that either couldn't be continued by me or would make a future sale challenging. You could consider making a personal loan to your partner so he has more capital for the equity and then set an interest rate that makes you whole. Not vanilla but might be doable.

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