Self-funded equity structure

June 01, 2018

by a searcher from University of New Hampshire in 101 Rocky Pond Rd, Hollis, NH 03049, USA

Hi out there - I'm self-funded and currently negotiating the LOI and also working on the financing. In all of the reference material (Ruback/Yudoff and the Primer etc..) and talking with some others in my situation there's been discussion that self-funders have a lot more leverage when bringing deals to investors regarding structure - equity percentage etc. What have other self-funded searchers done###-###-#### %) - vested at deal close and time and performance based or just close and performance. Also I would like to know what others have done in regarding classes of stock? -redeemable preferred vs non-redeemable participating preferred vs common vs profit interest vs strip equity financing etc.. And any other equity structure that's out there that I've never heard of.

Thanks (now I'm thinking I should have done a couple of years as an IB analyst instead of jumping out of perfectly airplanes and running around the desert). -Tim

Reply by an investor
from University of Virginia in Tampa, FL, USA

For self-funded searchers, I think it heavily depends on relationships with (and sophistication of) equity investors. Terms are totally negotiable and I’m not sure there are “market” terms like there are in the traditional model. We try to “keep” as much as equity as possible that still allows us to underwrite to ~25% returns for our equity investors, and we are trying to keep it simple in terms of structure and security types (straight common, maybe some simple preferred, or even just high yield debt). It’s also an opaque market, so I’d love to hear what others are doing.

Reply by an investor
from The University of Chicago in Chicago, IL, USA

Your greatest leverage comes when you have a signed LOI in hand that provides for 90~120 exclusivity (min) at an attractive valuation. At that point, with the right deal - investors will be courting you.

+3 more replies.

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