Self-Funded Equity/Preferred Investors

searcher profile

January 27, 2026

by a searcher from Harvard University - Harvard Business School in Westport, CT, USA

I'm a self-funded searcher working on a deal that after SBA, seller note and my equity contribution, will still have a $2-3M funding gap. I've heard self-funded searchers can typically raise a preferred instrument to fill this; I've heard it's usually 10% pref return with 20-30% common participation. Appreciate any thoughts on this, and of course intros to investors who may be interested. Thank you!
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commentor profile
Reply by an investor
in Asheville, NC, USA
Hey Evan, https://capitalpad.com invests equity in self-funded searcher deals. Given the size of your gap, I'd love to take a look at allocating. We generally invest $500k - $2M per deal. As for your comment on the terms, you're roughly right. 8-15% pref and a 1.5x-2.5x step up to common are market terms, but it varies deal by deal. Happy to discuss, but really you're trying to get investors to ~ 30% IRR, and there are various ways of achieving that. DM, or can email: redacted 🙏
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Reply by an investor
from Columbia University in Fairfax, VA, USA
^redacted‌ - If you're raising for a Self-Funded Search deal, you're likely going to use a standard Participating Preferred structure. Here's generally what you can expect regarding terms (high-level): > Preferred Equity Rate: ~8-12% > Principal Repayment: 1x liquidation pref. > Equity Step-Up: ~1.5-3.0x > Once Pref obligations are satisfied, Preferred converts to Common pro-rata and upside (or distributions) are split based on the post-conversion ownership (%) At the end of the day, you'll need to target ~30-35%+ IRR. There are a bunch of different levers you can pull to reasonably get you there. Given the size of your equity gap + your plan to use an SBA, one of your boundary constraints is going to be keeping your investors <20%, otherwise it's going to trigger a PG for your investors (which is almost always a hard 'no' for investors). Feel free to DM if you'd like to chat through it.
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