How to structure distributions that's fair both to searcher and investor?

searcher profile

September 17, 2024

by a searcher from Northwestern University - Kellogg School of Management in Chicago, IL, USA

Can I steal someones time that has gone through a successful search on how they structured distributions that was both fair to searcher and investor? Love to hear different ways on how they thought about it or structured it.

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commentor profile
Reply by a professional
from University of Michigan in Detroit, MI, USA
redacted‌, We're typically seeing a preferred return of between 8-12% and priority on return of capital, followed by return of searcher capital (if any). Some but not all deals involve a step up (typically between 2-3x where present). Your investors will also likely want to negotiate a salary cap, to prevent you from redirecting distributions. Other than that, standard minority rights (tag-along, preemptive rights, and some form of preferred veto). Let me know if you want to discuss. Always happy to chat. Reach me here via my DMs or directly at redacted
commentor profile
Reply by an investor
in Asheville, NC, USA
Standard market terms right now are:
- 8-15% preferred return.
- 1x liquidation preference.
- 1.5x-2.5x step up.

Generally the quicker you can return investors initial invested capital the better terms you can get.

As for the actual “distributions” in your question, the above structure means that investors are made whole and then receive a preferred return before searchers see any part of the proceeds (other than a modest salary).

happy to answer questions on this if you have any.
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