In today’s fast-moving business landscape, the way a deal is structured can make or break its success. Whether you’re raising capital, merging with another company, or launching a joint venture, a well-structured deal protects all parties and sets the stage for long-term growth. This article explores the essentials of deal structuring and how consulting services can help you achieve the best possible results.
What is deal structuring?
Deal structuring is the process of setting up and negotiating the terms and framework of a business transaction. It covers every detail—purchase price, payment method, risk allocation, and management responsibilities—ensuring all parties are clear and aligned before finalizing the deal. This approach is fundamental in major transactions, including mergers and acquisitions (M&A), capital raising, joint ventures, and private equity deals.
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From concept to investor-ready
We ensure your project resonates with the market, delivering the confidence investors need to move forward.
Deal structuring in fundraising and capital raising
When it comes to fundraising and raising capital, deal structuring is essential for making sure entrepreneurs, investors, and everyone else involved are on the same page. Structuring a deal for capital raising means preparing important documents—think information memorandum—and crafting terms that appeal to investors while also protecting the company. You’ll want to factor in things like company valuation, how equity is split, what rights investors get, and how and when they can exit. The big idea is to get the funding you need without tying your hands in the future. If this sounds complicated, don’t worry—engaging a capital raising consulting firm can make the whole process much smoother and boost your chances of success.
A strong fundraising structure usually includes:
- A clear cap table
- A detailed plan for how the funds will be used
- A strategy for handling future funding rounds
Key elements of a deal structure
There are several core pieces that make up a solid deal structure:
- Purchase price and how it’s figured out
- Payment structure (cash, shares, a mix, or installments)
- Risk allocation (indemnities, warranties, and who’s on the hook for what)
- Governance rights, voting power, and post-deal management roles
All these details are documented in legal agreements like letters of intent, term sheets, and final purchase contracts. Depending on the deal, you might also see earn-outs, seller financing, or adjustments for working capital.
Types of deal structures
Asset purchase vs. stock purchase
In M&A, deals usually come in two flavors: asset purchases and stock purchases.
| Asset Purchase | Stock Purchase |
| Buyer acquires specific assets and liabilities | Buyer acquires company shares (and all assets/liabilities) |
| Greater flexibility and risk management | Simpler legally, continuity of operations |
| Can be tax-efficient, avoids unwanted liabilities | Transfers contracts, IP, and licenses more easily |
Joint ventures and strategic alliances
When companies come together to work on a specific project or business opportunity, they often set up a joint venture or strategic alliance. The deal structure outlines:
- Who puts in what
- How profits are shared
- Who gets to make decisions
- How everyone can exit the arrangement
Getting this right from the start is important for avoiding confusion or disputes down the line.
Earn-outs and performance-based structures
Earn-outs tie part of the purchase price to how well the business performs after the sale. This approach is especially useful when there’s uncertainty around the company’s future results. The earn-out agreement sets out:
- What counts as “success”
- When payments happen
- How disagreements get sorted out
Leveraged Buyouts (LBOs)
A leveraged buyout, or LBO, is when a buyer uses a lot of borrowed money to buy a company, often using the company’s own assets as collateral for the loan. LBOs are big in private equity, and structuring them well means paying close attention to:
- The balance between debt and equity
- Making sure there’s enough cash flow to cover loan payments
- Planning the exit strategy
Private equity firms tend to use LBOs for established businesses with steady cash flows—think manufacturing or logistics companies. For an LBO to work, the business needs to generate enough cash to handle the debt, and there has to be a clear plan for selling or taking the company public down the road. Don’t forget: you’ll need to stay compliant with banking and securities regulations, too.
Minority vs majority investments
Deal structures can be designed for either minority or majority investments.
- Minority investment: The investor gets a stake but doesn’t control the company, though they may negotiate for certain protections, like veto rights or board observer seats.
- Majority investment: The buyer gets control, so structuring things like governance and strategic alignment becomes even more important.
This is especially relevant for cross-border deals, where local laws might limit foreign ownership or require partnerships with domestic firms. In these cases, majority investors typically want operational control and the right to make key management decisions, while minority investors are more focused on protective rights.
Bridging the gap between business and capital
From concept to investor-ready
We ensure your project resonates with the market, delivering the confidence investors need to move forward.
Deal structuring in venture capital and private equity
Early-stage vs growth-stage structuring
Early-stage investments usually focus on keeping things simple for founders:
- Flexible terms
- Straightforward documents like convertible notes or SAFEs
- Less investor oversight
As companies grow, deal structures get more complex, often including:
- Preference rights
- Liquidation preferences
- Board seats
- Detailed agreements
Early investors might be okay with fewer safety nets in exchange for the chance at bigger returns, while growth-stage investors look for more control and ways to limit their downside. For instance, an early-stage medtech company might use convertible notes to get quick funding, while a more established renewable energy business could set up a preferred equity round that gives investors dividends and board seats.
Convertible notes and SAFEs
Convertible notes and SAFEs (Simple Agreements for Future Equity) are popular tools for early-stage venture capital deals. They let investors put money in now and convert it to equity later, usually at a discount or with a cap on valuation. This setup keeps things moving quickly and puts off tricky valuation talks until the next big funding round.
Preferred shares vs common equity
Venture capital and private equity investors often want preferred shares, which come with special rights and protections that common equity doesn’t offer. These perks might include:
- Liquidation preferences
- Anti-dilution clauses
- Dividend rights
Founders and employees usually hold common equity, which lacks these advantages and can affect their payout if the company is sold or goes public.
Exit considerations for investors
It’s important to know that deal structures should always account for how investors can exit. Common ways out include:
- Trade sales
- IPOs
- Selling shares to another party
The deal should spell out exit rights, like drag-along and tag-along provisions, and detail how any proceeds are split.
Common mistakes in deal structuring (and how to avoid them)
Some of the most common mistakes in deal structuring include:
- Not clearly dividing up risks
- Skimping on due diligence
- Setting vague earn-out criteria
- Not aligning incentives between parties
Not bringing in experienced advisors or failing to clearly document the terms can lead to disputes or even cause deals to fall apart. The best way to avoid these issues is with careful planning, open communication, and tapping into advisors who really know the ins and outs of deal structuring.
You should also watch out for:
- Missing regulatory requirements
- Underestimating how tough integration can be
- Using one-size-fits-all templates that don’t address unique risks
How can capital raising consulting services help with deal structuring?
Capital raising consulting firms such as Projects RH are key partners in the deal structuring process. If you’re considering a merger, acquisition, or a complex fundraising round, working with mergers and acquisitions consulting services can make sure every aspect of your deal is set up to maximize value and minimize risk.
At Projects RH, we provide a full-service capital raising package, which includes:
- A financial model
- An information memorandum (IM)
- A concise pitch deck (12 slides)
- A one-page teaser
Our approach is recognized as best practice in leading financial markets such as London, New York, Toronto, and Sydney.
Our consulting team supports clients through every stage of the transaction, from preparing investor-ready documents to negotiating terms and ensuring legal compliance. We build our own financial models and documents in-house to guarantee accuracy and protect our clients and brand.
Consulting firms like ours also leverage extensive networks to connect clients with suitable investors, legal advisors, and financial experts, helping to facilitate smooth integration after the deal closes. With experience across markets including Australia, Canada, China, and the U.S., Projects RH is equipped to navigate regulatory and cultural nuances, maximizing value and minimizing risk for every transaction.
