In a traditional (funded) search model, what do investors typically receive in exchange for financing the search?

In a traditional funded search model, investors typically receive equity in the acquired company in exchange for financing the search. This setup is rooted in the idea that investors are putting capital at risk to support the search for a viable business acquisition, and their compensation is directly tied to the success of that venture. By acquiring equity, investors not only benefit from the potential future success of the company but also align their interests with those of the entrepreneur seeking to build value.

Receiving equity allows investors to participate in the upside potential of the business once it is acquired, effectively making them partners in the venture. This approach fosters a commitment to the success of the company, as both the entrepreneur and the investors have a vested interest in creating value. Other options, such as access to a network or receiving a fixed salary, do not provide the same level of alignment between the investor's risk and reward as equity ownership does. Furthermore, earning a percentage of revenues is less common in this context since it can create a different kind of financial structure and dynamic that might not be in line with typical search fund agreements.