G
GuestUser4aMPs1
Guest
Background:
26. Ran and sold a small biz a few years back. DIY'ed and loved the exit process. Got interested in filling a need in M&A. Been slinging deals ever since, both on the sell-side (for Brokers) and buy-side (for Private Equity). First within companies and then eventually under my own consulting brand.
Problem:
www.thomasnet.com
Everyone's talking about a nationwide labor shortage in the USA, but nobody's talking about the massive shortage of boomer owner/operators who will retire in the next decade. There are thousands of critical businesses that will cease to exist unless they're given or sold to a successor. Most don't get passed on to the next generation. These businesses NEED entrepreneurs like you and I to keep the world running and bring new life to their organization.
Solution:
Enter the Search Fund. These are investment vehicles in which an entrepreneur or a group of entrepreneurs raise funds from investors to find and acquire a single existing small to mid-sized business. The entrepreneurs then take on operational roles in the company, often as CEO, and aim to grow the business over the long term. Search funds typically target mature, profitable businesses, often in 'boring' industries, that have a track record of steady cash flows.
Why were Search Funds invented?
Search Funds are fairly new, invented in the 80's by a Stanford MBA professor in order for their students to learn hands-on business skills. Most search funds are started by entrepreneurs with limited operational experience and possibly no direct experience in the target industry. The goal of the investor is to place promising, motivated managers in an environment with a high probability for success given the oversight and experience of the investors themselves. Since then, it is estimated that 627 traditional funds have been or are currently being formed, with 198 operating currently.
Does it make CENTS?
Acquiring an established business via a Search Fund is not Fastlane out of the box, but rather Fastlane-able.
Here's why:
- Entry is very difficult because of raising from LPs. These funds mostly target companies at $5-$30 million (2-4x EBITDA)
- Control...Investors will retain the majority of the equity. However due to their role as 'free' advisors, it doesn't really matter.
- You're buying time separation from day 1, if you find a well-managed company (we won't buy unless it *could be* absentee).
- Scale. Well, this will depend on the business model. But we have several levers to pull to force appreciation that don't require adding more sales to the topline.
Why Me, and Why Now?
A few reasons...
- Newly married.
- Sick of playing small on businesses with no need or scalability.
- This boomer wealth transfer is a once-in-a-lifetime opportunity.
- There's a HUGE network of investors in San Juan, PR (where I'm based) due to the tax incentives.
- It's time. Gained a lot of experience from M&A, and want to put it to the test (with the help of these trusted advisors).
What's the target industry / angle?
Open to anything with good numbers, hence the ____ in the title.
Overall, the average IRR of Search Funds is ~33% which will perk investor's ears.
I'm mostly going to take the cues from my advisors, who in all likelihood will know where they want to aim but need someone to execute on it. Their opinions aside, I lean into anything that is stable, high cashflow, mission-critical to businesses or society as a whole, boring with few and/or incompetent competitors, and few employees. But this sort of "thesis" will inevitably change.
What's Next?
I'll have more to write later, but expect an update roughly every week or two while this gets off the ground.
I encourage anyone interested in this concept to read more:
www.wallstreetoasis.com
Also, a forum on Search Funds: searchfunder.com
Special thanks to @Ronak for introducing me to the Search Fund concept,
and @Kak for making me Think Bigger™
26. Ran and sold a small biz a few years back. DIY'ed and loved the exit process. Got interested in filling a need in M&A. Been slinging deals ever since, both on the sell-side (for Brokers) and buy-side (for Private Equity). First within companies and then eventually under my own consulting brand.
Problem:
Family Businesses Rarely Transfer to the Next Generation — Here's Why It Matters
Many U.S. private company owners dream that someday their offspring will want to take over the business, then successfully grow it to new levels, but that dream isn't usually a reality.
Everyone's talking about a nationwide labor shortage in the USA, but nobody's talking about the massive shortage of boomer owner/operators who will retire in the next decade. There are thousands of critical businesses that will cease to exist unless they're given or sold to a successor. Most don't get passed on to the next generation. These businesses NEED entrepreneurs like you and I to keep the world running and bring new life to their organization.
Solution:
Enter the Search Fund. These are investment vehicles in which an entrepreneur or a group of entrepreneurs raise funds from investors to find and acquire a single existing small to mid-sized business. The entrepreneurs then take on operational roles in the company, often as CEO, and aim to grow the business over the long term. Search funds typically target mature, profitable businesses, often in 'boring' industries, that have a track record of steady cash flows.
Why were Search Funds invented?
Search Funds are fairly new, invented in the 80's by a Stanford MBA professor in order for their students to learn hands-on business skills. Most search funds are started by entrepreneurs with limited operational experience and possibly no direct experience in the target industry. The goal of the investor is to place promising, motivated managers in an environment with a high probability for success given the oversight and experience of the investors themselves. Since then, it is estimated that 627 traditional funds have been or are currently being formed, with 198 operating currently.
Does it make CENTS?
Acquiring an established business via a Search Fund is not Fastlane out of the box, but rather Fastlane-able.
Here's why:
- Entry is very difficult because of raising from LPs. These funds mostly target companies at $5-$30 million (2-4x EBITDA)
- Control...Investors will retain the majority of the equity. However due to their role as 'free' advisors, it doesn't really matter.
- You're buying time separation from day 1, if you find a well-managed company (we won't buy unless it *could be* absentee).
- Scale. Well, this will depend on the business model. But we have several levers to pull to force appreciation that don't require adding more sales to the topline.
Why Me, and Why Now?
A few reasons...
- Newly married.
- Sick of playing small on businesses with no need or scalability.
- This boomer wealth transfer is a once-in-a-lifetime opportunity.
- There's a HUGE network of investors in San Juan, PR (where I'm based) due to the tax incentives.
- It's time. Gained a lot of experience from M&A, and want to put it to the test (with the help of these trusted advisors).
What's the target industry / angle?
Open to anything with good numbers, hence the ____ in the title.
Overall, the average IRR of Search Funds is ~33% which will perk investor's ears.
I'm mostly going to take the cues from my advisors, who in all likelihood will know where they want to aim but need someone to execute on it. Their opinions aside, I lean into anything that is stable, high cashflow, mission-critical to businesses or society as a whole, boring with few and/or incompetent competitors, and few employees. But this sort of "thesis" will inevitably change.
What's Next?
I'll have more to write later, but expect an update roughly every week or two while this gets off the ground.
I encourage anyone interested in this concept to read more:
Search Fund - Acquire and Operate a Business as the New CEO
An investment vehicle where a group of investors raises capital to support an entrepreneur in acquiring a company. What Is A Search Fund? Why Start A Search Fund? How Is A Search Fund Made? Types Of Search Funds .
Also, a forum on Search Funds: searchfunder.com
Special thanks to @Ronak for introducing me to the Search Fund concept,
and @Kak for making me Think Bigger™
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