How to Raise Money & Find Investors for Private Equity Deals

Colin and Brent discuss how to raise money & find investors for private equity deals.

Apple Podcast / Spotify / Google Play / Overcast

Enroll in Colin's Micro-PE Course & Community at

Reach out if you want some tech and product diligence done.

Reach out to Colin Keeley and Brent Sanders on Twitter with any feedback.

Sell your SaaS at

[00:00:00] Colin Keeley: Hello, and welcome back. This is Colin Keeley. Here

[00:00:03] Brent Sanders: And I'm Brent Sanders

[00:00:05] Colin Keeley: we are two guys buying and building wonderful internet companies.

[00:00:09] Brent Sanders: and raising money while doing it. Because today I think we want to talk through building up an investor base and how we've been, putting effort into that in the last year or so. And, w what goes into it, because I think there's, coming from our background in the venture space. had a fair amount of exposure to it.

I don't know, like you raise money for your startup, right?

[00:00:29] Colin Keeley: I raced a little bit, had a lot of discussions and then, so we have these studio companies and I helped run those processes. So that is like a much easier game, I guess I would say angels are hard to find. VCs are easy to find, like it's their job to be easy to find. So it's the whole process is China, build a FOMO basically.

So you try to run a really tight process within a couple of weeks and try to build up that feeding frenzy, this like networking to LPs and the private equity world, or like family offices has been very different. Like they're, they seem almost like they are intentionally difficult to find.

[00:01:05] Brent Sanders: Kind of makes sense. It's like there, my sense for the folks that we have spoken with in. Family office world is they don't really want to be anyone's first check. They want to be

[00:01:17] Colin Keeley: Wow.

[00:01:18] Brent Sanders: right. They want to follow on and they want to, and why I'm speaking in massive general generalities. So this is not really true of everybody, but my disposition going into those conversations is you need to have shown some sort of.

Or somebody, I know some sort of track record and then we can be talking. Cause it's just that a different profile. I think the thing we were warned with family offices, is that be aware of the long no, the, yeah, we're interested. Love to keep talking. And then three months, four months later, it's yeah, no, we're passing.

[00:01:50] Colin Keeley: Yeah, it's very hard to pin people down unless you give them like, kind of artificial deadlines of things. But yeah, just finding them it's. We both had connections into the industry. And then it's every time you have a call, it's like, who else should I be talking to? And from there maybe a three introductions, and it's just like slowly winding your way through this like opaque world.

That has been quite an experience.

[00:02:12] Brent Sanders: One interesting part of this sort of investor community that we I don't know. You discovered this is more so from your connections at booth, getting into the search fund or what we're finding are like search fund tangential investors, which are, I don't know, describe like a traditional search fund.

How would you phrase it?

[00:02:29] Colin Keeley: So there's different versions. A traditional search fund is often a, like a top MBA student from booth or Harvard or Stanford or Wharton or whatever, something like that. They go to all these, entrepreneurship through acquisition or search fund funds And say, Hey, I'm going to buy a business. I'm looking at this sector, give me the starting money.

So give me like. 300,000 or something and I'll search for a year and I'll cover my salary and expenses. And then on the back end, you're my like committed capital of, 10 million or whatever they're trying to do. And then, so they spend a year searching and they're getting the salary that whole time.

Then once they find a business, they have this like LP pipeline that just fills up the round and. The other way to do it is you do the search part of yourself, and then you have these discussions like slowly, and then once you get a deal on it, LOI, you raised the money from different people and that you could maybe get better terms because you weren't like paid salary to do it.

And then, so a lot of these investors are like kind of fund to funds. Like they are. Specifically investing in this search fund model and they have a mandate to do that and they can't vary from it. And then there's other investors that are, maybe have a looser mandate, so they could do this independent sponsor where they could back buying companies like traditional private equity, but where the GPS or us in this situation, aren't going to be the CEO.

And that's the distinction with a search fund versus independent sponsor.

[00:03:57] Brent Sanders: And there are set terms, which is the things that, you know, as we've talked about not being weird or adopting like structure to these deals like that, there's a prescriptive set of terms that, you can definitely deviate from, but it's if you want to go to those investors, it seems like it's a good way to go.

I think it's almost, I think of it as a its own vehicle. It's a way to structure a deal. That's, an acquisition that, as you said, you can be the CEO, you can not, usually you are. And, but yeah, what are the deal terms? If I remember correctly, it's three tronches of you raise all the money in it.

There's generally a preferred tier to the equity. Is there a common and preferred, how does it work?

[00:04:35] Colin Keeley: Yeah, there's common and preferred. So the preferred is generally like a six to 8%. And so that's always accruing and then the character. Traditional search fund terms is 30% and that's broken up into three buckets. So you get 10% on closing, 10% vests over four years. And that's your, the standard is something like that.

And then the final 10% is based on performance. So once you clear some hurdle, , it's like over 30% you earn that additional 10%. And so all that is really built on. It's a time crunch. So as soon as you close the deal, you got to get out within three, four or five years because you have all this stuff that's building.

So not a great fit if you're trying to hold something for longterm or trying to do anything that deviates, but investors love it because almost every deal is the same. And so it's just a yes or no, and there's nothing to negotiate. Like these are the terms.

[00:05:28] Brent Sanders: Yeah. It's do you like this business? You know what the terms are going to be, which I like. And as we go back to, I wonder if there's something here to be learned and probably not for, as we talk, going back to micro require and how they, go through the legal process and everything's a snowflake, like every deal has to be negotiated.

As we do more, I think you were finding, okay, there's a rhythm to it. There's th they are standardized, but still, there are no set terms. Like we talked about like the safe note of the venture world. So it's interesting. I don't know. I wonder if that's something, what we could learn from, in the future is almost, and I guess larger funds.

I wonder if like the constellations and the. The vistas of the world, once they have fun one, those are the terms they stack and it just goes one, two for three, and they never have to think about it again.

[00:06:15] Colin Keeley: No. So the funds that perform really well, it's a Vista and those ones are a little weird. They get really big. They may be keep lower terms, but it's on such a large assets, AUM assets under management that, it really adds up, but the people that do this well. So if you did one deal, you knock it out of the park.

You have a lot of power on the next deal, and then you can bump up the terms you could take, much higher percentages of you can take a huge acquisition fee, like kind of upfront. You can take way more Carey. But that, that's what the big VCs do and they have the power to do because if Sequoia is taking 30% benchmark is taking 30% of the carrier or whatever, it's still an amazing deal for LPs.

If you could get into the deals right into the funds.

[00:06:56] Brent Sanders: And then on the fundraising front, I it's been an interesting, we've really only been fundraising during COVID like during and after it's like way more like normally, and again, I'm going back to more of the venture experience, which was, I don't want to speak for. Everybody. But my experience fundraising in venture is very alcohol fueled.

, There's lot of wining and dining, a lot of dinners, a lot of bottles of wine. And it, in what I've seen of other folks, it's it can be taxing it, especially if that's your style, to be that sort of, let's get to know each other and get you comfortable with me. Get comfortable with you.

It's definitely, been an advantage to be like, Hey, let's just hop on a 30 minute zoom if it goes to 45 minutes. Great. I guess why don't we talk about like, how we've historically set up investor conversations. Like one, you gotta have two, you have to have a deal, right?

I think

[00:07:45] Colin Keeley: So you don't have to, it certainly helps a lot. Like it's hard to get these meetings and it's even harder, but it's just Hey, let's get to know each other. It's much easier if it's like, Hey, I have this awesome opportunity for you. Let's talk about it. And then you have something concrete to talk about. Whether. Deal is under LOI or not. At least you have something concrete to talk about and you're like bringing things to discuss.

[00:08:06] Brent Sanders: Yeah. So from there, like we automate everything or at least as much as possible. So we can just shoot a link out book through Calendly that hits web hook to these pipe dream. You kept saying, oh, it's all hooked up with Zapier. And I'm like, It is not Zapier. I coded that anybody out there that's doing workflow automation, check out pipe dream.

That's a good plug to really easy and free. You can write like little snippets of JavaScript. And then we link it up with DocuSign in case we need an NDA. And one thing we didn't automate was, access to you, usually downstream with automating access to documents and stuff. Cause that can be a little.

Security wise. I wasn't sure if that's a great thing to honor me, make it easy to book a meeting and get the docs. If you need any NDA for the conversation like that, I feel like it was well received. I think we had our one investor, that guy that I met at a country club me the he's asking for the, what was it?

The PPA. The PP, give me the, send me the PPM. It was all in caps was great. I don't think he ever booked a meeting cause it might've been a little too technical for him, at least within the investors, I think we, that are tech savvy and can take zoom meetings. I've appreciated though.

The point of all this is I've appreciated doing this during COVID, to be honest is it's like we've been able to historically just go through a lot more meetings, like 30 minutes. Here's the deal. Let's talk. Let's get to know one another and not be like let's grab coffee and you're on your. Latte of the day and you feel like trash or your six beer or whatever it is.

And you're making these excuses, let's grab a drink, let's grab something. Or, neither one of us is in the, through all the fundraising we've done gotten on an airplane to date.

[00:09:41] Colin Keeley: It's crazy. Yeah.

Otherwise I think what you do is you fly to New York, you fly to Minneapolis and you like book as many meetings as you possibly can over a three-day. And just back to back, this is a very different world now. And there's this big question, whether this was even possible two years ago, and now this is probably the, only way forward.

I still miss, I liked the in-person stuff. I liked getting

[00:10:00] Brent Sanders: do too.

[00:10:01] Colin Keeley: hang out with people. So we should probably, go to more of these conferences, go to more of these meetups where like family offices are, but, this has been very efficient,

[00:10:08] Brent Sanders: what was the one just in Orlando? What's what is that called

[00:10:11] Colin Keeley: SMB bash. It's a new one.

[00:10:14] Brent Sanders: So the feedback. A friend who went and, LP whose he was like, it was just a ton of younger guys, younger girls that were. Looking for capital. And it was like, he said, maybe low value for somebody in our disposition, not to say that we're not, we're young or old, but just, there was a lot of people trying to do the same thing, scraped together, investments on or commitments from folks.

And it's I love the idea of I used to do that all the time with my agency. It was like New York for a day, just go drum up business, schedule three or four meetings. Fly back at night and I would get enough work for the next two, three quarters. That is characteristic of, just getting face to face with people which I do miss.

And I recently, starting to, it's funny, I've been able to branch out, meet some folks in the Cleveland, investor community, which of course they're Midwestern. Nice and awesome, really willing to bend their. I don't know, bend their ear a little bit more to somebody who is local.

And I think there's something to that, but, never have I ever thought, Cleveland's a place to fundraise. Definitely not. It's, there are some different little pockets of people that are savvy and will invest in software deals. But, so I've been super impressed and happy about that, but, I moved here for raising a family, not for raising.

[00:11:31] Colin Keeley: Yeah.

So I have friends that have raised like these Midwestern venture capital funds and they just have a hell of a time. Like all the, family offices are very risk adverse, state, but it's like this tech thing, I don't know. I'm pretty skeptical of that. We're like a bit of a hybrid where you're investing in cashflow and businesses and they get that better.

So I think we've generally had a much easier time than these people where it's like a raising a blind pool of capital to invest in these risky startups that are starting from nothing. At least we're starting from cash flows and, established businesses.

[00:12:02] Brent Sanders: yeah. Yeah. Blind pool is not yet what we're doing. Maybe we just need to get into the, the self storage.

Software for self storage. I would be into though. And I actually have looked, seen some of the offerings in the space and it's pretty bad. Definitely space for someone to come in, it's just, you're absolutely right. The Midwestern family offices are probably risk averse, people trying to make.

That transition and make that change and get exposure to, I think the recurring revenue is definitely something that it's interesting. The meetings over zoom have been interesting and I feel lucky for the last like couple of years to be able to save my liver from a wining and dining and then a.

I'd say one of the interesting observations that I want to talk about is, and this is feedback that we receive mainly from the GP of our old fund, who is once you start these conversations and then maybe you have a deal and you want to shop that and like getting an answer or getting commitments.

And it's been, you mentioned it before, but creating artificial deadlines, which has been interesting, it seems like a generally accepted. To obviously to sell, but then to together closings for financing. I don't know if, do we want to talk a little bit about how we create artificial deadlines?

[00:13:16] Colin Keeley: Yeah.

I think it's a good idea. This, so our former GP was very good at this. He's very good at the strategy of the whole thing. And it always feels a little slimy, but it's. is how you get deals across the finish line. So in the VC world, it's always like I'm fundraising for these two weeks, the last two, three months, it'd been amazing up until the right, which you can always gain.

You can always save up all your marketing to do that. And this is the playbook. And then you try to play the other ones against each other. There's only So much room in the round. Like I think I could maybe squeeze you in and then people are, everyone ends up happy, I guess is the way to do it cause they're like, oh God, I got into the hot deal. Great.

[00:13:53] Brent Sanders: So it was something along the lines of saying, we're two weeks away from. X artificial deadline. This is the date that we're, we're only going to allow, this amount from family offices and, we need to get a commitment by this time. And the other part of it was like, always build in a way to come back to them, even if they don't reply, being able to yeah, we're, I'd really to include you in this.

And I just, I'm not that good of a sales person. I can't say I've executed this well. And it's usually been over email where we're sending a note being like, Hey, we're going to be oversubscribed. And we're only going to take X amount of dollars from institutions. So we have to set this hard deadline.

We'd really like to, get you in, but we're not sure if we can make it happen. And it's all in service of developing some sort of FOMO, some fear that oh, I'm going to miss this deal. And everyone else is in it. But, yeah. I guess it feels a little slimy, but it's hard to get people to part with their cash.

It's hard to get that final, it all sounds great until you have to write the check and then it's okay, it's uncomfortable. It's uncomfortable. Give people. Some six-figure amount, especially from like an individual investor. Who's man, this could be XYZ, or this could be going into something else it's is this the right choice?

And cold feet are natural. And so I think part of the technique there is like making them feel comfortable that other people are the demand is there and that you may miss. And so by the way, like I think this is the same thing selling. It's not necessarily a fundraising technique, but it seems to apply itself quite well to it.

[00:15:24] Colin Keeley: Yeah, I guess the other kind of pro tip here is if you have a minimum, everyone wants to do the minimum. So the thing to do is always ask, what's your average check size in a deal like this. And then if you know your, then at least you get like maybe five times, whatever your minimum. Cause that's their average check size instead of everyone like putting in a little bit, just to test the waters and get access to the next deal or whatever.

[00:15:45] Brent Sanders: Yeah, very cool. I think it's just, it's been, an enjoyable thing to do. The thing that I wonder about is, moving forward, assuming we. Assuming we go back to normal with COVID and start meeting people. I do see value in, and this is something that our oral venture firm did is, building up.

Audience, and then starting to, I don't know, do some form of event planning. I know your contact out in Minnesota had something similar, whether it's lunches or dinners or like a speaker series, something along those lines building up, cause it's like you're trying to build a community and it's just like any other community in my mind.

It's yes, we have opportunities. And I in Chicago there were. Of these groups, like I think of high park angels. And I'm not saying that, but I am saying something that feels somewhat exclusive brings smart people together, brings goofy, frankly. I think a good investor community is a bunch of.

Quirky people that are smart and have had some degree of success. And that alone can be fun just to get those people together. We used to do more of an, a small-scale thing where we'd go skiing or something like that. But, being able to spend one-on-one time is I think important for people to get comfortable with one another.

The end of the day, I think that's what it is.

[00:16:57] Colin Keeley: So I've been tagging along to these events. Like my friends have their, venture funds and they throw their LPD meetings and I'm like, just try to steal their LPs basically and hang out and drink beer with. So like you can do these events pretty cheaply. You get a bunch of sponsors to, provide the venue, the wine, the beer, the food, whatever.

I, yeah, I think we should definitely do more of those in-person events at some point. And that's where you hit up like different cities. Like you throw Chicago, then you start Minneapolis event and you try to get all the family offices to come.

[00:17:27] Brent Sanders: Yeah, I dunno. It's, I originally, when looking into, when we started this business, it was a lot of Hey, let's sell fun. This stuff. Let's we could raise money. And to me, I would tell you like my. Reaction to that at first it was like, ah, I don't want to have to deal with that, but it's actually been over the last two years or so.

What have we been doing this for almost two years? Yeah. It's that has actually turned into one of the more enjoyable parts of this job is like spreading out and building relationships with smart people that are like fun to check in with, it's let them know what we're doing and they get excited about what we're doing.

And it almost adds another layer of motivation. To perform, but also to do good by people and make them happy. And it's like it, I wasn't expecting it to, I thought it was only going to be like the upsides, the cash they give and the downside is the pressure to perform. And really it's been more of a positive motivator than a negative one.

It's been like, I want to make these people proud. I like them. I want to make them money. I want us all to succeed together and feel like you have a team versus, you, you hear the activist investors that are, on public companies buying, the recent, what was the recent tea that was spilled around the Peloton CEO, was Blackstone that released this deck.

I don't know if it was blacks. It was some group that, basically publicly released, a reason why the CEO should be fired. This was like a month ago. I don't know if you saw that, but it was fucking hilarious.

[00:18:50] Colin Keeley: What was it about?

[00:18:51] Brent Sanders: It was why he was like a terrible choice for CEO. And so they had go check out the deck, but some of the best quotes were like interviews that he had done, where he admitted that he's a terrible CEO when the company was doing really well. He's I'm an idiot. And then there was this other thing. I don't know if this one was in the deck, but he admitted, he had interviewed that he, every morning he drinks like 40 gulps of water.

First thing in the morning to the point where he almost bought. So it's he's a goofy guy, but then they went into I think the most, devastating point that they put on the deck was like, he admitted defeat by hiring McKinsey. And I was like, dang shots fired. That's always the thing that I'm, I guess I had in my head or that I've observed about it.

Hasn't ever been a firsthand experience around investors is I really. See the upside in it. Now that we've built some of these relationships, it's oh man, this is like positive motivation versus somebody who's going to come in and like stomp on your work and call you terrible and fire you. So I guess as long as you perform it, it shouldn't be a problem.

Or don't try to take interviews and admit being a terrible CEO.

[00:19:58] Colin Keeley: Yeah,

I think the ideal is it's a two way street, right? So they're interviewing you, but you're also interviewing them. And like the ideal is that you find someone you could work with and make money together for I dunno, the next 30 years, the next 50 years, however long your career is. So it's cool.

It's been really fun setting these relationships and hopefully, they're long and enduring ones that are successful for everyone.

[00:20:17] Brent Sanders: exactly. I think that's all I got to say about, the last, I dunno, a couple of years of investor conversations, but, if you're out there thinking of. Doing something similar or, I know, there are more folks that are dabbling in search and that's a whole community of its own.

That's, we've recently had some exposure to, but, feel free to reach out to us and let us know what your experiences are. I'm curious to see, like for other folks that are doing similar size deals, which I would say are small, you know what, there's always this fine line between I'm going to either self-funded or family and friends, but I'm interested to see how this space evolves, that we're playing in specifically this kind of like lower end of the market.

I wouldn't say Lauren, but like smaller companies that are trying to strive to become bigger companies.

[00:21:03] Colin Keeley: Okay. Take care. We'll talk to you guys

[00:21:06] Brent Sanders: Thanks for listening.

[00:21:07] Colin Keeley: Buh-bye.

Continue reading

Subscribe now.

Get the occasional update with helpful guides and insights.