What is the best type of funding that you’d look for if you’re a very small private equity or a search fund?
Ex: would you not want Series A, B, C, seed, pre-seed, any ipo funding, angels,
And what are the major differences that would make one funding desirable goer another
Just trying to learn, thanks so much.
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Many search fund have a network of high net worth individuals behind them.
What industry is the company you are targeting in? Lenders have a huge hard on for B2B infrastructural SaaS atm so getting non-recourse debt for small deals there would be easier. They also love anything asset rich.
Generally speaking, you want as much non-recourse debt as possible provided cash flow can safely cover interest expenses without relying on growth assumptions.
Deal size is the biggest determinant of what's even available to you. If you're buying a company with under $2M of EBTIDA you're actually going to have a harder time to finance the deal as everything including equity sees the deal as higher risk. Most importantly though, lenders generally have $2M EBITDA as their floor.
Anyways, deal size also affects who writes the equity check. Smaller deals basically = super angels/angels. Anything larger means you should consider speaking with those that routinely work with independent sponsors.
One important thing to consider if you're seeking financing for a smaller deal...be as selective as possible with investors. Personally I only want people who know my industry or have relevant experience on our cap tables because then I know they won't annoy me with dumb questions all the time. Plus it's nice when they can jump in and assist if need be.
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