Capital call

Definition

A fund asking investors to wire part of what they pledged.

Why It Matters

A fund with committed capital signs its backers up front and draws the money in stages, while a traditional search fund's backers fund the search and hold a right to invest in the deal. A searcher who cannot count on a call being met while a deal is under LOI has a financing risk hiding inside a signed commitment, which is why the quality of the backers weighs as much as the amount.

In numbers: Investors who committed $2M are not asked for it at once. A $400,000 draw funds diligence and closing when the deal is real, and the other $1.6M stays with them until the next one.