Search Funds: The quiet, dependable, risk-averse sibling to the startup
1–10 of 23 posts
Re: Search Funds: The quiet, dependable, risk-averse sibling to the startup
#2is this somehow different than just buying a business?
Re: Search Funds: The quiet, dependable, risk-averse sibling to the startup
#3Re: Search Funds: The quiet, dependable, risk-averse sibling to the startup
#4is this somehow different than just buying a business?
You are putting a fund together to go out and do it.
Re: Search Funds: The quiet, dependable, risk-averse sibling to the startup
#5is this somehow different than just buying a business?
The founder(s) usually pitch the fund to a handful of initial investors and raise a few hundred thousand to bankroll the search process (their pay, employee pay, travel and meeting funds, etc...). Once an opportunity is identified they go back to the investors and figure out how to best fund the purchase then stay on to manage/turnaround the business. It's different because they aren't usually putting their money on the line and they get paid to search for opportunities.
Re: Search Funds: The quiet, dependable, risk-averse sibling to the startup
#6is this somehow different than just buying a business?
IMO the author has the entire idea of why people do this wrong. If you can raise tens of millions of dollars on the idea that you will be able to buy a business and get a 3-6x ROI for your investors in a 3 year timeframe, before even identifying the acquisition target, I sincerely doubt you're in it for a temporary ego boost.
It's extremely difficult to move up the ladder of a PE firm to the partner level, so often times associates/analysts will strike out on their own as a fundless sponsor or start a search fund.
Re: Search Funds: The quiet, dependable, risk-averse sibling to the startup
#7It seems strange to me that someone who doesn't have the risk appetite to start a business would think they are well suited to running one still in its early stages.
Re: Search Funds: The quiet, dependable, risk-averse sibling to the startup
#8Search Funds are an interesting beast. I have some direct experience here as I was in contact with a number of "searchers" earlier in the year (word about my business, which is retail/consumer focused, made its way around what I learned is a pretty tight-knit network.)
The model works as such: The searchers are typically recent MBA grads and sponsored by a group of backers (who, in many cases, are the actual professors & their network). The searchers have less power than you (or they) think -- their job is to find, interview, dig in and model out a business -- and then present it to their investment partners, who are the ones who actually make the investment decision (not entirely unlike angel investing cohorts).
Risk-averse is spot on -- they're looking for a _very_ specific type of business (TFA doesn't cover it exactly): They want safe straightforward B2B operations with an intense focus on recurring revenue. That's the phrase I kept hearing over and over - "locked-in recurring revenue." The idea is that the searcher can jump in at the helm and not worry about rocking the boat while he/she gets up to speed.
The particularly risk averse ones (especially those that have been searching - unsuccessfully - for 2+ years) are looking for a different type of "unicorn". They want businesses - like Asurion - with massive growth potential and iron-clad (i.e. low churn) long-term recurring revenue from other businesses. Don't we all ;)
Most of the targets are businesses that are all around us but that we techies probably haven't heard of -- things like oil services companies with contracts to transport crude from ports to refinery. Or commercial janitorial companies with 10-year contracts to service all properties in some real estate management company's portfolio.
It's an interesting niche of the investment world, for sure.
Re: Search Funds: The quiet, dependable, risk-averse sibling to the startup
#9It seems strange to me that someone who doesn't have the risk appetite to start a business would think they are well suited to running one still in its early stages.
The companies they are buying aren't in the early stages; they are established companies. They are companies that have been around a while, that have owners who want to exit, with the typical reason for an exit being an age.
Re: Search Funds: The quiet, dependable, risk-averse sibling to the startup
#10is this somehow different than just buying a business?
IMO the author has the entire idea of why people do this wrong. If you can raise tens of millions of dollars on the idea that you will be able to buy a business and get a 3-6x ROI for your investors in a 3 year timeframe, before even identifying the acquisition target, I sincerely doubt you're in it for a temporary ego boost. It's extremely difficult to move up the ladder of a PE firm to the partner level, so often t…
Do you have any prominent examples of PE employees doing that? Does this happen at premiere firms?