Step-up on conversion

Definition

The premium at which search capital turns into equity once a deal closes.

Why It Matters

It is the price of the two years somebody paid for while you looked, and it is set before you have found anything. A raise of units at a stated step-up turns each dollar of search money into more than a dollar of deal equity, and the difference comes out of the searcher's own stake at closing. The number is negotiable and rarely negotiated, because a first-time searcher raising from strangers has little to trade. Ask what the step-up is in the same breath as the raise size: two funds of the same headline amount can leave a searcher holding very different fractions of the same company.

In numbers: A $25,000 unit bought during the search converts at a 150% step-up into $37,500 of deal equity at closing.