Entrepreneurs typically come up with their own ideas and invest time in building a basic business at which point they seek funding to grow it. There’s a method called the Searchfund in which an entrepreneur raises funding to find a business which can then be funded for acquisition and growth. The concept comes from Stanford. you can see more at this link about the basics.
The search fund concept originated in 1984 and has become
increasingly well known among business schools and private investors. A search
fund is an investment vehicle to allow an aspiring entrepreneur the opportunity
to search for, acquire, manage, and grow a company. They raise an initial seed amount of funding
to support the search effort which typically takes two to three years. Once they have identified the acquisition
target, they raise a round of funding to acquire and grow the company. The
follow on funding can be in the form of debt, seller equity rollover, earnouts,
traditional senior and subordinated loans, and equity financing from new
investors.
One can find opportunities from retired CEOs or trade
association presidents, brokers, or other personal contacts. Skills needed for a Searchfund program are the same as for an
entrepreneur -- a wider view of the
world, attention to detail, perseverance, ability to build relationships, and
strategic thinking.
Benefits of running a Searchfund include expanding one’s
view to a wide range of industries in a short amount of time. One can find a
target company to acquire and then lead that company to success with the
potential for a high financial gain.
About one in five Searchfund ends without finding a target acquisition
The returns match those of venture funds and angel
deals. The Search Funds 2011 study shows
the asset class at 34.4 percent IRR and 11.1x multiple of investment. Results from the Stanford experiment with
search funds provided the following results:
“As of December 2011, 26 principals or partnerships were either
looking for a company to buy or raising funds for acquisition; 50 had acquired
companies that were still in operation; 3 had deviated from the search fund
model; and 71 were classified as “terminal.” Of the 71 terminal search funds,
23 acquired and exited a business, 17 acquired then shut down a company, and 31
concluded without an acquisition.”
I know several investors interested in pursuing a Searchfund.
If you are interested in being a part of Searchfund, please contact me.
Best regards,
Hall T.
