What you can expect from offerings on Mainshares

Investing in SMBs has historically been the “Wild West”—confusing deal terms, opaque transaction documents, and investments that rely on blind trust in any distributions. This lack of standardization across the asset class makes it challenging for investors to invest confidently in SMB opportunities and has created a massive barrier to entry into the industry. 

While the Mainshares team focuses relentlessly on building the best possible tools for investors and issuers to transact, we also think it’s our responsibility to help bring transparency and standardization to this fragmented market. 

By doing so, our vision is a world where investors can feel confident backing the next generation of small business owners by clearly understanding a deal’s structure, investment details, and owner-operator merit.

Mainshares rigorously vets every issuer before they raise capital on the platform, and we’ve formulated a three-pronged approach to our vetting process. 

Today, we’re pulling back the curtain for the first time. 

How Mainshares vets operators

Investing in small businesses means trusting the owner-operator who will run the day-to-day operations. On Mainshares, these are our issuers— industry pros, self-funded searchers and independent sponsors raising capital to close on their acquisitions. 

Mainshares takes steps to vet issuers before they raise capital on our platform so investors can have confidence they’re dealing with well-intentioned, skilled operators. 

For starters, we ensure issuers are truthful about their background history and have sufficient credit to access SBA debt. Mainshares conducts a:

• Personal background check

• Credit check

• Identity verification check

Once we verify the legitimacy of an issuer, we want to ensure that the issuer is a good fit for their target acquisition. We call this “operator-deal fit.”

Many factors can signal whether an issuer will be a good fit for their target acquisition. We look for the following characteristics:

• Industry experience: We want the issuer to have identical or transferable industry experience in past roles. They may also have related experience in other capacities outside of professional work, like education, volunteering, or side hobbies.

• Leadership qualities: We prioritize working with issuers who have past experience directly managing or leading teams, whether in their professional lives or extracurriculars. These skills are critical for succeeding as an owner and hard to learn without lived experience.

• Clear acquisition thesis: The issuer should have a clear acquisition thesis for acquiring the target business. Their thesis should include the exact parameters that lead them to the target business and why the target business creates operator-deal fit. 

• Skin-in-the-game: Issuers on the Mainshares platform must provide a portion of the equity capital. We will not accept any issuer that doesn’t have their own capital at work. For many of our deals, the issuer will have an SBA loan involved and must sign a personal guarantee for that loan. 

After supporting over 100 sell-side acquisitions, we've found that the most successful operators are the ones who are determined to overcome any obstacle. We work closely with issuers for months to test this drive and identify those who truly have what it takes.

How Mainshares vets businesses

Once we vet the issuer's background and fit for the target acquisition, we want to understand the business's merits. Our due diligence seeks to understand if it’s a generally healthy business in a stable or growing market.  

We look for several factors when reviewing a business. Some of our due diligence checklist items include:

• Is the broader industry set to grow? Facing headwinds or tailwinds?

• Does a small number of customers generate a large percentage of the revenue?

• How much capital expenditure or working capital is required from year-to-year?

• Are revenue and EBITDA stable and growing? Or are there wild swings from year-to-year?

• Why is the seller selling the business? Are they incentivized to help with a smooth transition?

• What are the opportunities for value creation post-sale?

These checklist items are not all-inclusive but provide a snapshot of our considerations when reviewing a business. 

By now, we’ll have identified if the prospective offering includes a great operator-deal fit and a great target business. 

How Mainshares vets deals 

As a reminder, Mainshares is not an issuer of offerings on the platform, and we do not set deal terms. However, our experience across hundreds of SMB deals allows us to shed color on common deal structures and red flags that cause investor hesitation. This benefits issuers and investors by structuring a deal with sufficient investor appetite. 

When issuers come to Mainshares to raise capital, we look for the following proposed deal terms:

Investor return expectations: Assumptions: reasonable (3-8%) growth & no multiple expansion

• Above 25% IRR

• Above 3X MOIC on 5 yr exit

• Under 4-year payback period on invested capital

Structure:

• 1.5x - 2.0x step up for highly-levered SBA deals

• MOIC hurdles for less levered  deals

• We accept very few all-equity deals with certain exceptions for:

  • Successful serial search entrepreneur  

  • Issuers capitalizing on Qualified Small Business Stock

  • Roll-up strategies

Under healthy market conditions, we’ve found that deals with these proposed terms will attract experienced, value-add investors, while still providing material upside to the operator.

However, market conditions may change, affecting how investors view specific deal mechanics. Mainshares continuously adjusts its outlook based on changing investor preferences and market conditions and may accept or decline prospective offerings as preferences change. 

Mainshares’ due diligence process aims to ensure that offerings on the platform meet minimum requirements so that investors have confidence in the quality of the operator, business, and deal structure. 

These criteria should be approached with some subjectivity, and there may be edge cases where they don’t apply.

Information posted on this page is not intended to be, and should not be construed as tax, legal, investment or accounting advice. You should consult your own tax, legal, investment and accounting advisors before engaging in any transaction.