Sweat Equity / earn-as-you-go equity structures

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May 19, 2023

by a searcher from ESSEC Business School in Torrance, CA, USA

I am looking for templates/documents around minority equity structures - particularly specific to sweat equity.

Background info -I am in conversation with a couple of companies within the fashion & lifestyle categories wherein I will take up a minority position (20% to 40%) in return for their backend operations (sourcing, supply chain) and certain parts of front end operations (geographic expansion, product line & distribution expansion)

I am looking for inputs on the following -
1. DD checklist - I have a very detailed checklist which is good for standard majority acquisition but I want to trim it down to the most relevant points. I am looking for specific pointers that are not very exhaustive and yet critical even at minority acquisition deals (For example, DSCR, SDE etc.)

2. Deal Structuring - What would be the best way to structure a deal. Should it be similar to traditional search fund model, say 1/3rd at the time of acquisition, 1/3rd time based vesting and 1/3rd on meeting & exceeding the milestones or should it be structured in venture format (4 year vesting with 1 year cliff) or are there any other structures availiable for earn-as-you-go equity

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Reply by a searcher
from Texas A&M University in Irving, TX, USA
I’m looking at making a deal with a guy who’s completely out of the industry like I was but is very hungry to have ownership. He wants a stronger base salary than I offer but if I can retain 60% ownership long term I feel like he could be a great asset.
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Reply by a searcher
from Loyola University of Chicago in Chicago, IL, USA
Some will go for this, some will not.
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