Refreshed and Remastered: No Bargains on Your Equity!

Time flies!

Last summer we published a 2-part series on the multitude of ways in which serial acquirers have raised capital. 

• In Part 1, we contrasted the “VC Structure” and the “PE Structure” 

• In Part 2, we reviewed the Search Fund; SPAC / RTO; Fund; and Deal-by-Deal structures.  

With so many deals completed since then, we have decided to refresh the analysis. 

As a founder, the first decision is the tradeoff between 

• The quantum and the flexibility of financing; and

• How much control and economics you are willing to give away. 

Are you in the first camp? Join the majority of purpose built serial acquirers whose economics are based on carried interest. They come in various shapes and sizes - search funds, deal by deal vehicles, PE and family office backed HoldCos - but all follow the same principle. Capital providers own the investment vehicle. The management is entitled to carried interest, which tends to grow linerly with investor MOIC / IRR. Typically up to 15-25%. 

The second, smaller group consists of the firms that have raised capital against defined valuations. Unsurprisingly, institutional investors aren’t too keen, especially at an early stage. Aggregators that have succeeded to pull the trick tick one or more of these check boxes:

• Buying assets cheaply (e.g. ecommerce SaaS) and using debt liberally

• Raising from retail investors (e.g. private equity community)

• Meaningful founder equity investment (e.g. Valsoft)

As with any rule, there are exceptions. Which ones and why? And more importantly, what is and isn’t “fair”? Dive into Part 1 and Part 2!

Disclaimer: we are not lawyers - make sure you get qualified legal and tax advice!