Raising Capital the Smart Way - How to fund your acquisition without losing control

Capital is not only money. It is permission, governance, and pace. Here is how to choose the right money for the right deal without giving up the wheel.

Hello and welcome back to Buyout Diary.
If you have been following along, we have already covered two foundations:

1. how to write your investment thesis so you know exactly what you are looking for, and

2. how to build a human, repeatable sourcing system that fits your style.

Today we move to a topic that most acquirers find intimidating at first and liberating once they learn how to do it well: raising capital.

There is a simple truth in ETA that is easy to overlook. Capital is not only money. Capital is permission. The type of capital you bring in will shape your freedom, your pace, your stress level, and your governance for years to come. So in this edition, we will get specific about how to choose the right money for the right deal, how to approach investors with clarity, and how to structure finance so that your future self will thank you.

Settle in. This is a deep dive you can work through in one sitting or in a few focused sessions. Keep a notebook handy. There are exercises you will want to complete while the ideas are fresh.

Mindset reset: capital follows clarity

Most first-time acquirers think the sequence is: find investors, then find a deal. The result is months of unfocused outreach that does not convert because the conversation lacks a spine. The correct order is the one you are building in this series:

Clarity of thesis → Sourcing discipline → Capital fit → Negotiation → Diligence → Close.

Investors do not need perfection. They need conviction. Conviction comes from clarity. If your thesis is narrow, your sourcing is consistent, and your pipeline shows signs of life, good capital is more likely to come to you than the other way round.

Reflection prompt
Write one sentence that captures your capital need.
Example: I am looking to finance a profitable, founder-led B2B services firm with 20 to 40 staff in the Randstad, with recurring revenue, stable margins, and a seller who is open to a staged transition.

Choosing your capital model: what game are you playing?

There is no perfect model. There is only the model that fits who you are, where you live, and how you want to work. Here is a clean comparison you can use to make a decision that suits your next five years, not someone else’s.

Self-funded acquisition

What it is: You run a lean search while working or consulting. You fund the close using a combination of your own cash, seller financing, bank debt, and minority investors if needed.

Strengths: Maximum autonomy. Ability to hold long term. Freedom to experiment.

Trade-offs: More personal risk. No salary during the search. Relationship dependent.

Best for: Operators who value control, can live lean, and have a clear niche with real deal flow.

Useful context: Self-funded stacks frequently combine senior debt, a seller note, and a smaller equity cheque. Earn-outs can bridge valuation gaps in capital-constrained cases.

Traditional search fund

What it is: A defined group of investors funds your search and later backs the acquisition. You draw a search salary and post-close salary.

Strengths: Downside protection during search. Strong governance. Access to experienced mentors.

Trade-offs: Board control shifts to investors. Often an expectation of a medium-term exit, though some investors support longer holds.

Best for: Full-time searchers who want structured mentorship and prefer not to carry search risk alone.

Useful context: See Stanford and Yale SOM materials on search fund structures and investor preferences. These outline vesting, board composition, and reporting norms in detail.

Independent sponsor

What it is: You search independently. For each deal you assemble equity from a small set of investors. You may receive promote economics and fees post-close.

Strengths: Flexibility deal by deal. Can scale into a HoldCo.

Trade-offs: Fundraising work repeats. Requires trust-based investor relationships.

Best for: Networked acquirers who want creative structures and long holding periods.

Quick test
Write three words that matter most to you across money, time, and control. For example: autonomy, patience, stewardship. Keep those words on the corner of your desk. They are your filter whenever a capital offer arrives.

Building the capital stack: what the money should look like

A sensible capital stack protects cash flow, aligns incentives, and leaves room for reinvestment. Here are the common building blocks, with practical comments to shape your deal. Where helpful, I include ranges reported by industry resources you surfaced.

Seller financing

The seller carries a portion of the price, paid over time. In small deals, seller notes often sit in the 10 to 30 percent range, with 3 to 5 year terms and rates a little above senior debt. Some markets report higher ranges, even up to 40 to 60 percent in smaller US deals when bank appetite is limited.

Why sellers like it: Better overall price, smoother handover, ongoing connection to legacy.

Why buyers need it: Lower upfront equity, less bank pressure, signal of confidence in the business.

Watch-outs: Default terms, security interests, intercreditor agreements, and whether payments are contingent on performance. Keep definitions simple and auditable.

Bank or term debt

Senior loan from a bank or private credit provider. Europe typically sees shorter maturities and lower LTV than US SBA operators enjoy. Loan terms of 5 to 7 years with 50 to 70 percent LTV are common in the Netherlands and Germany. Relationships with the Hausbank in Germany and early in-person dialogue matter.

Strengths: Reduces dilution. Enforces financial discipline.

Watch-outs: Covenants and amortisation pressure. Sensitivity to rate changes.

Tip: Speak with more than one lender early. Present yourself as an owner-operator with a plan, not as a pure financial buyer.

Equity capital

Cash from you and external investors.
Strengths: Cushion for surprises. Strategic value from involved investors.

Watch-outs: Dilution and corresponding governance rights.

Tip: Keep the number of investors small. Fewer voices, faster decisions. Investor psychology research in ETA shows preference for clear dilution models, performance-based vesting, and tight board mechanics.

Earn-outs and contingent payments

Portion of the price tied to hitting milestones. Up to 30 percent is common in some markets. This helps bridge valuation gaps and align incentives where there is uncertainty about future performance.

Watch-outs: Define metrics tightly. Avoid bespoke formulas. Choose revenue or EBITDA, set measurement periods and dispute processes in writing.

Working example: a two million euro purchase

Price: €2,000,000
Equity: €500,000 from you and two aligned investors
Seller note: €800,000 payable over four years
Bank loan: €700,000 over five to seven years
Debt service ratio target: keep combined annual debt service below 50 percent of normalised net profit

This is not a template to copy. It is a shape to learn from. Your goal is to protect cash, preserve control, and set a pace that allows operational improvement after the handover.

Exercise
Sketch three variants of your capital stack for the same price: capital lean, balanced, and capital rich. How does each variant affect cash flow, control, and your first year of breathing room?

Where investors actually come from

You do not find aligned investors by sending cold mass emails with a deck attached. You build a small circle of people who trust you because your process is visible and your thinking is consistent. Here are the highest yield sources.

Warm introductions
Ask three people you already know to introduce you to one investor who likes small companies in your geography. Do this only after you have your thesis and sourcing system running.

Practitioners with capital
Successful operators, boutique investors, and angels who prefer steady cash flows. They care more about your integrity and process than your polished pitch.

Deal-adjacent professionals
Transaction lawyers, accountants, and sell-side brokers often know investors who like your specific niche. Bring them real opportunities and they will reciprocate.

Communities that vet by behaviour
Not large groups where everything is performative. Smaller circles where people hold each other accountable. Show up every week with a pipeline update, not once with a big ask.

One-page asset
Maintain a single live page with your thesis filters, search geography, recent activity, and a two minute audio note explaining what you are looking for. It is easier for people to share than a heavy deck.

How to speak with investors so they lean in

Investors are humans with limited time. The fastest way to build trust is to show that you respect their attention. Keep it simple, clean, and consistent.

First email template

Subject: Brief intro and focus area

Hello [Name],

I am searching for a profitable small company in [region] with recurring revenue, 15 to 25 percent margins, and a founder who wants a thoughtful transition. I am focused on [sector or two sectors] and currently have [number] conversations in progress.

If this is the kind of deal you like, I would welcome a short call to compare notes. Happy to share filters, pipeline summary, and how I think about structure and governance.

Warm regards,
[Your name]

Keep it short. No attachments. Offer clarity and proof of process. You are signalling respect and calm.

First call structure
2 minutes: who you are and why this niche
5 minutes: your filters and sourcing rhythm
5 minutes: what a good deal looks like to you
5 minutes: how you think about alignment, governance, and post-acquisition plans
3 minutes: ask about their preferences and constraints
Close with a single next step. For example, you will share a one-page summary, and if a suitable deal arises, you will return with a light teaser and proposed structure.

What investors actually listen for
Is your scope narrow enough to be credible. Are you disciplined about process. Do you protect cash first. Do you have the temperament to lead an operator and speak with a seller respectfully.

Structure that protects you later

The heat of the deal is where most first-time buyers sign documents they later regret. Protect future you with a few non-negotiables.

Simple earn-out definitions
If metrics are complicated, disputes are guaranteed. Use revenue or EBITDA, set timing windows and verification rights.

Clarity about board rights
Agree in writing how decisions will be made, how many board seats exist, and what counts as a reserved matter. Investor psychology work in ETA consistently shows that trust grows with regular reporting, board clarity, and predictable cadence.

Fair but firm default terms on seller notes
You want the seller aligned, not paralysed. Balance security with an ability to operate.

Covenants you can live with
Model your first year with realistic assumptions. If your lender’s covenants require perfection, renegotiate before signing.

Incentives for your operator
Put in writing how your GM or CEO will share in value creation. This improves retention and lowers your day-to-day load.

Scripts for seller and investor alignment

Use these as starting points and edit to your voice.

The credibility bridge with a seller
I respect what you have built and I want to preserve the parts that matter most to you. I am not here to flip your company. My intention is to hold, improve the systems, and look after the team. I would like you to stay close for the first year as adviser. We can structure part of the price as a seller note so that you benefit from the stability we build together.

The alignment test with an investor
My priority is a stable, cash-flowing company that we can hold and improve. I prefer low to moderate debt, clean covenants, and a simple board. If you prefer high leverage and a forced exit, I am probably not your best fit. If you value patient compounding, I think we will work well together.

The short follow-up after a first call
Thank you for the conversation. Here is my one-page summary with filters, a snapshot of current activity, and how I usually think about structure. If a deal fits your preferences I will send a short teaser within the month, otherwise I will keep you posted quarterly so we do not waste your time.

Two real-world stack shapes you can adapt

Numbers are illustrative. The point is to see how shape changes behaviour.

Cash-protective shape for a services firm
Price: €1.5 million
Equity: €375k
Seller note: €675k over five years
Bank loan: €450k over six years
Target net profit post handover: €350k
Combined annual debt service target: under €175k
Why it helps: you buy breathing room to invest in people and systems in year one.

Growth-leaning shape for a stable niche manufacturer
Price: €4 million
Equity: €1.4 million
Seller note: €1 million over four years
Bank loan: €1.6 million over seven years
Expansion facility: €300k available for capex once KPIs are met
Why it helps: capacity to fund growth without returning to the equity well.

What is different in Europe

If you are operating in Europe, especially the Netherlands or Germany, the financing stack behaves differently to US SBA-backed deals.

Bank lending
Term loans of 5 to 7 years with 50 to 70 percent LTV are common. Relationships with the local bank and early in-person meetings matter. Dutch bank mark-ups are often tougher for very small loans, while larger, better prepared cases price more favourably.

Public support
In Germany, KfW programmes and regional development banks such as LfA or NRW.BANK provide guarantees, subordinated instruments and longer tenor options that can blend with senior debt. In the Netherlands, BMKB guarantees and other schemes can bridge security gaps for bank lenders.

Mezzanine and seller involvement
Subordinated debt and silent partnership forms are widely used. Seller notes in the 10 to 30 percent range are common and often priced a few points above senior debt. Earn-outs are frequently used to align interests in family businesses.

Takeaway
European buyers assemble from more varied sources, navigate stricter bank structures, and lean more on seller participation and public programmes than a typical US SBA buyer. Your power comes from preparation and relationships, not one magic product.

Action section: your 30-day capital plan

Open a fresh page. Work through this in one sitting. Do not overthink. Edit later.

A. Your capital model choice
My preferred model is: self-funded, search-backed, or independent sponsor.
Why this fits my next five years:

1. …

2. …

3. …

B. My capital stack template
Target price range: …
Equity range and likely partners: …
Seller note target as percent of price: …
Lender type and rough terms: …
Earn-out yes or no, and on what metric: …

C. My first five investors
List five names who already trust you. Next to each name, write one sentence that explains why your approach fits their values.

D. My first lender conversations
List two lenders you will speak to in the next two weeks. Prepare a one-page summary with filters, geography, and how you protect cash.

E. My update rhythm
Decide a cadence for investor updates. Example: first Friday of every month at 08:30, three bullets, under 150 words.

F. My covenant sanity check
List three covenants that would be hard for you to live with in year one. Make a note to discuss these before term sheet stage, not after.

Common traps and how to avoid them

Over-raising equity to feel safe
Dilution feels fine at the start. Later it constrains you. Match equity to real risk, not fear.

Underestimating the cost of speed
Fast money is rarely patient. If you value control, prioritise alignment over closing quickly.

Unclear post-close plan
Debt and equity are both easier to raise when your first hundred days are specific. Investors are underwriting your discipline more than your spreadsheet.

Too many investors
Four aligned investors who like you are far better than ten names who barely remember the call.

👉 If you want to start right now, download your free Capital Readiness Workbook here.

Closing reflection: raise money like an owner, not a fundraiser

You are not chasing approval. You are building a circle of partners who will help you steward an existing company and its people. When you speak from that place, capital conversations change. You become calmer. You ask better questions. You push back when terms do not make sense. You protect your time and your team.

Capital is a mirror. It reflects who you are and how you intend to build. Choose money that lets you be the owner you want to become.

If you found this useful, you may want to revisit Part 1 on writing your investment thesis and Part 2 on designing a sourcing system. The three together form a solid base for the next steps in this series, where we will cover negotiation with founders, diligence beyond the spreadsheet, and how to close with confidence.

Thank you for reading and for doing the hard work. If you have a question you want me to explore in this series, reply to this email. I read every message.

Warm regards,
Alexander