What (creative) ways are folks using to come up with their equity injection?

September 07, 2024

by a searcher from University of Pennsylvania - The Wharton School in Milwaukee, WI, USA

What (creative) ways are folks using to come up with their equity injection funds besides pure cash on hand for their completely self-funded search? Here are the paths I've looked at, in no particular order:

1. Selling investments that are sitting at a loss

2. Pledged asset line / margin loan on taxable investments

3. HELOC

4. Retirement accounts (ROBS)

What are your experiences with the options and your view of the pros and cons?

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Reply by a searcher
from INSEAD in San Francisco, CA, USA

Hi Pei, I'm in a similar situation where I'm trying to fund a deal entirely by myself. No investors so I own 100% of the company. HELOC is definitely my preferred option so I don't have to mess around with PGs as part of the SBA. If you have rentals, you can also go the CRELOC route as well. I have several rental properties so most of my creative financing involves using them in some way. I've looked into traditional financing but run into two main issues (1) they want you to have a history running the company or be in a similar industry and (2) there are EBITDA minimums that make it not a good fit for self-funded (e.g., >$2M). Family and friends as well as seller notes are also a good way to get the equity injection.

I haven't touched anything around pledged asset lines or margin loans on my investments, trying to keep those separate.

Reply by an investor
in Accra, Ghana

In addition to the options you’ve mentioned, another creative approach is leveraging **seller financing** as part of the deal structure. While it doesn’t cover the entire equity injection, negotiating a portion of the purchase price to be paid over time can reduce the upfront cash needed. Another option is **partnering with an equity investor** who can provide the necessary funds in exchange for a minority stake in the business. This can be particularly useful if you’re short on cash but have a strong value proposition and growth plan. Each option has its pros and cons, with seller financing potentially leading to better alignment with the seller, while bringing in an equity partner might dilute your ownership but also bring in additional expertise and resources. Would love to hear how others are navigating this as well!

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