Have any searchers been funded via something like @earnestcapital's Shared Earnings Agreement (SEAL), rather than a traditional search investment?
The SEAL pays a % of owner earnings up to a cap multiple (2-5x investment) and converts to equity in a cap raise.
Could it be used?
The two (SEAL & Trad search) feel pretty similar, but the SEAL would continue paying the investor even if the search failed.
The failed searcher would pay a % of income up to a cap multiple, reducing the "go-to-0" risk to the investor of giving them capital in the first place.
If the search succeeded, the SEAL's % of owner earnings would repay quickly.
Perhaps there are two cap multiples, one for a failed search (say 1.25x) and one for a successful search (3x) to keep incentives aligned without burying a failed searcher in unmanageable debt.
Earnest's SEAL also converts to equity in a cap raise.
For a searcher, the SEAL might convert to equity upon selling the company after their time operating.
OR, no conversion but higher cap multiple, 4x?
A traditional search investment converts to equity at acquisition though.
Hybrid approach?
A SEAL that pays % of income up to a 1.5x cap in a failed search, but converts to equity at 50% step up basis in a successful one?
There are seemingly endless ways to design something here and these are not complete thoughts, but wanted to share the idea.
The main benefit I see here is reducing the investor's risk in contributing search capital since they could still get their money back and more if the search failed.
What might be some benefits to the searcher?
A similar model in my mind is Entrepreneur First which pays folks a salary for a few months until they create a new company with a co-founder. If EF deems the company a true start-up, they'll fund it.
@WilsonCompanies released some of his operating playbook yesterday in this fantastic thread. Just so happens we're recording a podcast today, let me know if you want me to ask him anything specific!
In my searcher survey I asked searchers for their one piece of advice to prospective searchers. This thread is 29 pieces of advice current searchers and operators shared and I hope you find immense value in their perspectives.
Enjoy below 👇🏻
1. I don't have advice, just my opinion: I try to take alignment over convenience.
2. It’s hard but rewarding. Make sure your family understands the project.
1/ Not sure how many of you have heard of Edelweiss Holdings (permanent capital co) and Anthony Deden, I had but had not seen this interview with @realvision until @amellis_84 sent it to me.
He said it would "blow my mind" and he was right! Takeaways:
2/ @amellis_84 has a Deden quote on his site which I liked so much I added it to mine. Describes "Think Like an Owner" perfectly:
"I think that one of the things that is missing, and one of the things I have discovered is that there's a substantial distinction between people...
3/ ...who are investors and people who are owners in businesses. An owner in a business is far more interested in his survival, in the first instance, than its necessary monetary value. No owner of a business wakes up every morning asking himself what he's worth."