Sourced company -- now what?
Long story short, I know someone who was building a startup. He pivoted away, but I found it interesting and did some research as I figured it was extremely underappreciated. I was right, but there's a very interesting company doing >$15mm EBITDA with only a small share of the market and no real competitors (they're the only real player). I've identified some things to change and am confident revenue can be bumped significantly. TAM is big as well, new players entering more willing to use the software.
I worked in IB for a year and a half (consumer coverage), but left due to a family member getting a terminal illness. Because of this, I've spent the past 9 months going over the industry, learning more about the product, surveying 250+ existing and potential customers, and am confident this company is not operating near the level it should be.
I ended up getting coffee with the founder, and spoke about what I think an exit would look like based on his metrics. Said I'd need to look into it furthed, and secured an NDA to do some diligence. I'll add that the balance sheet is very clean. Founder said he's been approached by PE firms years back, but is more interested now -- to quote him "I've been thinking about spending more time with my wife and kids before they head to college".
I dont have real connections in PE (some friends headed to PE this summer), so wondering what the best next step would be.
Fwiw, I have 2 offers to head back into IB (one at my old firm), but think this is really interesting. Worst case I learnt a lot about a new industry and go back to IB, best case this is something I can work on. Curious if im in over my head.
Do some diligence on the company, hire a placement agent to raise $ (you’ll get fucked on terms but that’s fine) and run it yourself big dog
Diligence is done in terms of financials and differentiated growth plan.
When you say i'll get fucked on the terms, wdym? how bad we talking?
If you have buttoned up analysis that you could show a family office, etc then yeah diligence is done but otherwise you’ll need to be able to effectively communicate the biz
Terms i have no idea. Do you have any personal capital you could play with? Could you convince the seller to leave equity in?
>$15mm EBITDA is pretty high. Even if you can get an average outcome, the terms won’t matter cus you’ll make a lot of money and have a better experience doing this compared to doing anything else so i wouldn’t let that stop you at all
Is the guy building the startup the same as the guy who's looking to spend more time with their kids, or different?
What type of company? Obviously you can't be too specific, but if it's a technology business PM me and I'd be happy to help you connect w/ a few funds who will pay a solid referral fee. You don't need a placement agent or a banker, those things muddy the process and you should be the one getting paid on this based on the work you've already done.
If this is real, I'm happy to do the following:
1. Pay you $10K for a warm introduction to the founder (in-person meeting)
2. Pay you $10K a month to work with me on diligence, planning etc. and a job with similar base salary + bonus + options post-close to join in operating role
3. If I actually do the deal, pay you $1M or 1% of EV, whichever is more. This can be cash at close or equity rolled into the business, your choice.
I'll do the same, but $20k for a warm intro, $20k/mo to work on diligence, and $1.5M or 1.5% of EV.
Feel free to message - can provide some advice
Looks like you have some solid offers.
You're in one way or another a Searcher, with a possible deal, lacking in nearly-all other aspects related to being a Searcher (where in reality this would be far out of range for a Search Fund anyway).
SO, would be glad to walk you through working towards:
Can offer guidance on either approach and willing to sign NDA to discuss further, if there's something here, great, if not no big deal and all the best.
On the Selling side, I can get this sold and will throw 25%-30% of my commission your way (have to discuss - need more info) along with walking you through the process to get this sold and on market (will show you all the ropes and you can run your own show in the future afterward if you like, or hook-up to another firm etc., whatever, however you wanna run with it later will offer the run-down for any approach/ideas you might be considering).
On the Search Fund side, we walk through set-up, come up with an equity structure for responsibilities and partnership, and then I walk you through securing capital, necessary processes and integrations for the fund, and then structuring out the acquisition.
Or hmu can sign NDA and discuss options and see if there's any viability in synergies and/or if I was in your shoes what I'd probably do in this instance... cheers and all the best.
The sharks in the water here smell blood. Don't take any of these offers. Do yourself a favor and do the leg work to research family offices or LMM PE firms interested in this type of asset and represent the seller yourself. It seems like you have the skills and hustle to do it and will earn way more.
Haha, just saying based on my post, this cut is above standard splits, and I'll be imparting as much info / industry experience as need, can't start off at 50% then I leave myself open for putting in more effort than I should on top of if I get negotiated down on the split to secure the deal.
Set up a search fund bud, you'll need some guidance from somewhere, and... I guess maybe it could be done on the fly. All the best, cheers.
Do not give random people on the internet your deal.
Also, do not waste an opportunity this promising by allowing yourself to be relegated to a middleman role where you only receive referral fees.
You absolutely can buy this company. You will face a greater amount of work and higher level of stress than you can imagine.
There are two variants of this path. They are very similar in practice, but the audience for each is a bit different. One is called 'entrepreneurship through acquisition' (ETA). This is the search fund community. The other is called the 'independent sponsor' model.
I highly encourage you to do as much research on the capital markets aspect as it sounds like you've done on the actual asset. You should spend months on this. If you structure this opportunity correctly, you should wind up with an economic outcome that can be life-changing.
Here are some threads I've commented in over the years (CTRL-F my username), use this as a starting point for things to research.
Please feel free to PM me if you have specific questions as you begin this journey.
What are you trying to accomplish? Are you trying to buy it yourself or refer it to a PE firm? At $15M they must be covered by some LMM banker somewhere.
1. Create CIM and Teaser
2. Cold approach family offices, SBIC funds, search funds
3. Convince founder to roll 20-30% of his equity for a "second bite at the apple"
4. Raise funds from said funding sources. Do not approach fundless sponsors. You are looking for capital sources, not someone to split the deal with but don't have money themselves.
5. Close deal and get to work
Do not under any circumstances give this up to some sleazy business broker, such as the commenter above, for a referral fee or commission split. There ain't no "ropes" he can teach you that you couldn't do yourself.
Alternative take from someone who’s actually bought a business:
Even if you got the company under loi, you would have to pitch this to an investment group in order to close the deal.
Here’s what will happen next:
1. Investment group (sbic fund for example) will take advantage and close the deal themselves. They’ve done this to a good number of independent sponsors (including myself), especially younger ones. Good luck suing them.
2. Seller will bring it to market to see if he can get better offers. If he/she has built the company, this person would be smart enough than to sell it to a 23/24 year without any experience in the industry.
I hope you get this deal closed none the less. But it will be tough to do without experience for a deal this large, especially without industry experience.
You could also try to get a referral fee from someone established in the space, learn with them, do it a second time down the road.
The way to win in this game in todays world:
1 look at unfavored deals/industries
2 start small and build towards bigger deals from there
3 have some industry vertical
Curious - what segment / industry is this? Software, industrials, healthcare?
And btw I think you don't explain what your goals are. A lot of the "recommended" next steps depend on what you want to do. Make a buck selling this business? Run it? Run some part of it? Use sourcing this deal as a way to get into a fund?
Try someone like L Squared - I know they like big deals brought by independent sponsors
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