Were you able to raise millions in preferred equity?

December 30, 2020

by an investor from New York University in St. Louis Metropolitan Area, USA

If you were able to raise millions in preferred equity from U.S. investors you did not know (i.e. not friends or family), I would appreciate it if you would answer the following questions. This will help me decide what path to follow to raise equity for my own deal.

If you prefer to remain anonymous, you can answer in a new post. Please title it "Answers to survey on raising preferred equity".

1- How much did you you raise?

2- From how many investors?

3- How long did it take you?

4- What percentage of the purchase price did you raise?

5- On what terms? Interest rate, share of upside, etc.

6- What does the rest of your capital stack look like?

7- Where did you find those investors? Websites, alumni groups, investment banker, etc.

8- What was the process from first contact to getting the money? Meetings, conference calls, PPMs, due diligence, etc.

9- What concerns did the investors have and how did you address them?

10- How did it work out in the end and what would you do differently?

11- What is your relationship like with your investors? Do you communicate frequently, do you send monthly updates, do they get too involved, etc.?

Thank you for sharing. This will help the entire community.

Reply by an investor
from University of California, Berkeley in San Francisco Bay Area, CA, USA

I doubt anyone will disclose exact details here, but in my experience it is definitely possible to raise millions in preferred equity. The terms really depend on the deal, the amount of equity needed, and who the investors are. Generally, you can raise a small amount of equity (couple of $100k) on very searcher friendly terms by talking to a lot of individual investors who will invest $25-100k each). Once you are looking to raise larger equity checks ($1M+) you will need to approach more professional investors who are looking to invest on "market" terms for larger self-funded search deals. For even larger deals, you have to go to PE firms who have an entirely different perspective of what "market" is. For searchers who want to retain the most equity, the best strategy is to look for a target with a purchase price below $6M, then max out SBA financing and raise the smallest amount of equity possible from friends and family type of investors.

Reply by an investor
from University of Pennsylvania in Washington, DC, USA

Obviously this depends if doing traditional search, search fund accelerator or looking at more independent sponsor or self-funded search approach. I'm an active self-funded search investor (7 deals in 2o20) and recently spoke at a Searchfunder webinar "Tips for Self-Funded Search from an Investor" where I laid out the data and terms I've been seeing in deals. I've put together a slide deck that happy to share - DM or redacted

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