Anyone with experience with 'Micro PE' funds willing to chat?

searcher profile

September 01, 2022

by a searcher from IE Business School in Los Angeles, CA, USA

Hi all -

Interested in hearing if anyone in the community has done some sort of 'micro PE' or 'succession' fund in the past. It'd be similar to a traditional search but would attempt to limit downside risk of not acquiring a company:

*Principals would identify opportunities - pre-screen, owner outreach, etc. prior to any funding
*First fundraise would be small (<100k) to fund deal-related costs such as diligence - this round would receive the typical 1.5x step-up on acquisition
*Second fundraise would be for acquisition capital in combo with senior debt/seller note
*Principals would run company and/or install mgmt team
*Following acquisition, principals would continue to work at identifying future opportunities to bring to investors to fund the diligence round and repeat process

Focus would still be on SMEs and founder-controlled businesses in attractive niche markets, etc. that a typical search would go after.

Has anyone seen/done this before and willing to talk about their experiences?

4
10
145
Replies
10
commentor profile
Reply by a searcher
from Cornell University in Toronto, ON, Canada
This sounds interesting. I know a small group that does something similar - small PE firm targeting $5-15M EBITDA companies in HC, industrials, and consumer staples. They do pretty well. But it's more structured as traditional PE, and they try to find businesses with good management that can be retained. Replacing management in acquisitions done by a small PE shop sounds like it could be challenging just due to the limited amount of people you have that can jump in and run a company. I personally like the fund of search funds model, because you essentially already have new management tied to all the deals. I'm definitely interested in hearing other thoughts though.
commentor profile
Reply by a searcher
from Hillsdale College in New York, NY, USA
Message me if you'd like. This is almost exactly what we do. A few lessons learned since we first decided on our business model 2 years ago, and a few minor pivots.
commentor profile
+8 more replies.
Join the discussion