You need the capital, you do not need a new boss
Most owners I talk to do not want to sell anything.
They want $3 million to $40 million to buy the building, buy out an uncle, add a second location, or replace a bank line that just got repriced on them. Private equity will write that check and take your company in the process. That is the trade almost nobody explains to you upfront.
There are 6 or 7 other ways to fund it, and the reason you have not been shown them is not a conspiracy. It is that nobody gets paid to show you the structures that leave you in control.
Why this got harder in the last two years, and it is not your imagination
"There is way less capital being raised today than before. The required return and cost of capital is higher. Usually banks will give you less percentage of debt on an asset, or you have to have less debt because the cost of debt is higher. And meanwhile, cold email reply rates have dropped from 8.5% to 1.9% last year. And I'm sure they're under 1% this year."
So the money is more expensive, the banks are lending less against the same asset, and the old way of finding capital has stopped working. All three at once. That is why the structure matters more now than it did in 2021, when almost any structure worked because the money was nearly free.
The 7 structures
1. Preferred equity. They get a fixed return ahead of you, you keep the common and the control. They are not your partner in perpetuity, they are ahead of you in the stack.
2. A co-GP structure. They come in as a co-sponsor on specific deals instead of owning the company that does the deals.
3. A gross revenue royalty. A percentage of the top line until they hit an agreed multiple, and then it ends and they are out.
4. Seller paper. The person selling you the building or the competitor finances part of it themselves.
5. A family office that wants 8% and a board seat instead of control. These exist in large numbers and almost nobody reaches them, because they do not advertise and they do not cold call you.
6. A minority recap that leaves you at 70%. You take chips off the table and you still run the company.
7. A straight PE majority buyout. Which is a real option and sometimes the right one. It should be the seventh thing you consider, not the first thing you are shown.
Why I keep coming back to royalties
I have closed 17 gross revenue royalty deals and the reason is simpler than it sounds.
"A lot of small businesses might have a Cybertruck lease instead of a Honda Civic lease. And you don't want to care about that on some level. So if you get the royalty, then I don't care what your expenses are being charged back."
That is the whole thing. The moment an investor is paid out of your bottom line, they have a legitimate interest in every expense you run through the company. Your truck. Your wife's salary. The conference in Scottsdale. Every fight I have ever watched between an operator and an investor is a fight about the bottom line.
Pay them off the top line and that entire category of conflict disappears. Gross revenue is one number and it comes off the bank statement.
And you shape it to how the business actually works. If you are opening new locations and there is no revenue for nine months, then there is no royalty for nine months. Small after that. Healthy after two years. Do not put a royalty on a business before it has a top line.
The question that diagnoses most stalled raises
"If you construct a deal so they can sleep at night, get their initial investment back, and then they get profits up to a 2x or 3x plus, investors are generally happy. Many times if you can structure a deal to avoid having to use a bank, so it's just seller financing, you're way less likely to have a foreclosure or have some random covenant on page 92 called on you because the bank feels like it, or is being acquired."
So here is the question. On whatever you are raising right now: what is the first dollar your investor gets back, and when?
If the honest answer is "at exit, alongside us," you have made your raise much harder than it needed to be. Not impossible. Harder. And you did it to yourself on the first page of the deck.
