Does anyone have a good read on standard/market economics for SaaS search deals if you're self-funded? We've heard 2% transaction fee (with at least 50% rolled into equity in the target) and then anywhere from 75% (searcher): 25% PE Firm on the carry promote to 25% (searcher) and 75% PE Firm... Any recent market data is helpful and appreciated! Assuming it's a profitable SaaS deal and debt will likely be used on the transaction.
More on Searchfunder
Searchfunder is an online community and toolkit for searchfunds. Over 80% of those involved in searchfunds maintain a Searchfunder.com account to help them network, problem solve challenges, and keep up with the industry.
We maintain partnerships with database providers that make searching more effective, efficient and affordable along with features that help searchers find deals and investors and vice versa.
We maintain partnerships with database providers that make searching more effective, efficient and affordable along with features that help searchers find deals and investors and vice versa.
Some drivers of your financing structure:
1) What's the EBIDTA multiple? The lower the multiple, the more debt you can pile on. This increases IRR for investors without requiring them to take as high a stake.
2) What's the overall deal size? To earn a majority stake, searchers typically take a personal guarantee (PG), i.e., an SBA loan. That limits your deal size to ~$6M, or perhaps ~$10M if you add a conventional loan to the mix.
Unless you can finance a deal with debt up to ~80%, and often with a PG, it is difficult to make the investors' economics work such that you end up with more than 25% common equity. And to make matters more difficult, you often need to assume a high amount of growth in SaaS given the high entry multiple. That constricts your capital further - you don't want to take out a lot of debt if you need cash flow to fund growth.
In short, you can finance a SaaS deal just like any other, but the high EBIDTA multiples mean that (a) it's harder to pay off a high debt load - especially when funding growth; and (b) you have to aim for smaller starting EBIDTA if you limit your deal size to what the SBA can fund. For those reasons, you increase your possible targets substantially by taking on less debt, targeting slightly larger EBIDTA companies, and settling for a max 25% common equity stake.