Self-Funded Self-Underwriting Criteria

by a searcher from The University of Chicago - Booth School of Business

2 months ago

Hey everyone,

We talk a lot about underwriting criteria from SBA and other investors. My question is more around what returns the searcher expects to or underwrites to — is there a general range that people feel comfortable underwriting to for their own return? (could be cash-on-cash in first year in base case and / or MOIC and IRR over the hold period).

I appreciate that there's a lot that goes into this, but just looking for high level perspectives and ranges if any that people are willing to share.

Thanks!

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4 comments

searcher from University of Sheffield

I created a spreadsheet for analysing something like this. Basically a series of sensitivity tables for different scenarios to assess the potential outcomes. It’s very basic but is currently the strongest indicator that supports ETA as a relatively de-risked financial decision once you’re comfortable with a few factors. Happy to share if anyone is interested.

2 months ago | like reply | 1 like

searcher from Dartmouth College - Tuck School of Business at Dartmouth

I agree with Bern.

I have tried to quantify it using broad assumptions and back of the napkin math and come up with 20-40% IRR for most deals I am considering. Inputs taken into consideration are cash at acquisition, salary differential to market salary (if I just got a W2 job), distributions along the way (I am making a broad assumption that 50% of all remainder cash flow is distributed out of business), and cash at exit (including multiple expansion and EBITA growth). For a low growth scenario, I use ~ 2-4% YoY, and for a good growth scenario, I use 12% YoY revenue growth.

This is all speculative, and for me, the real opportunity comes after being in the driver's seat and making calls based on what I learn as I run the business, which is hard to anticipate and model. So the real questions I eventually ask myself are those posted by Bern plus "Does it seem like something I would enjoy doing for 5-10 years?"

2 months ago | like reply | 0 likes

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