What are the typical investment criteria that investors expect?

July 07, 2025

by a searcher in Paris, France

What are the typical financial conditions (EBITDA, revenue, valuation multiples) that investors expect for both self-funded and traditional search fund deals?

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Reply by a searcher
in Monroe, WA, USA

I can speak about my own expectations and about expectations of investors I encountered as a corporate IT manager participating in acquisitions and new office openings. Personally, I'm factoring in my age of 51 to determine planning horizon. That means the business must both repay investment with interest equal to the stock market opportunity cost (around 10.4% a year) within 7 years from the deal AND become reliably profitable and manageable through a hired manager. This way it can be sold at the end of such investment cycle, although an exit might not happen until much later - why sell a good thing? In corporate environments, I saw a surprising lack of focus on profitability within any specific term. Instead ability to gain market share, reduce costs and generally skew company books to meet criteria triggering larger success bonuses to senior manager of the acquiring / expanding businesses seemed to be key factors affecting investment & acquisitions decisions. Having observed one case of a divestiture, i.e. selling a company piecemeal to different buyers, choosing the right timing was the key. That way the company shed all its backoffice at once, immediately split itself into 4 business units and sold them to buyers who were aligned for that event. That created good liquidity to owners-founders, but very bad experience for former employees.

Reply by a searcher
from Michigan Technological University in Phoenix, AZ, USA

Take it with a grain of salt as I don’t have any first hand experience, but I found the FAQ on CapitalPad.com (fund raising site) to be informative and it appears to roughly match advice I’ve seen here and other places on the internet. Here’s the excerpt I’m referring to: For Self-funded searchers: Standard market terms for the self-funded search fund industry are: Preferred shares, an 8-15% preferred return, 1x liquidation preference, a 1.5x to 2.5x step-up (conversion of preferred shares to common shares), and an estimated IRR over 30%. All deals are welcome, but deals that get the most interest: Target a return of initial investor capital in under three years. Plan to pay regular distributions. For Independent Sponsors: The terms for independent sponsors should be largely in line with the McGuire Woods Independent Sponsor Survey. We are happy to discuss this. The better terms you offer, the easier it is to attract investors and raise.

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