Early Days of Traditional Search - Understanding the Ecosystem

September 16, 2024

by a searcher from Morehouse College in New York, NY, USA

Hello,

I'm currently a MM PE investors exploring the option of a traditional search in the next year or so. Would like to connect with folks who are early on the process to better understand the process to launch, finding investors and general best practices. I have a thesis, so really looking to understand the foundational framework and second finding investors.

Look forward to connecting.

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Reply by a searcher
from Harvard University in Jeddah Saudi Arabia

I launched a traditional in a new geography, with no existing traditional search funds. However, quick notes on your queries. For foundational framework, the Stanford primer (that DyShaun shared above) has all the templates and they are more than enough. If you want the biggest SF library (from my humble experience), go to (https://www.newtonequity.com/search-fund-library). I have not seen a one-stop-shop that includes everything about SF as Newton Library does. Steps: (1) start. I know it sounds cliche, but truly just start approaching traditional search fund investors. If you are doing it in the US, there are plenty of search fund investors. Your first meeting will be more around you, why search funds, and making sure you know what you're putting yourself into, and MAYBE they ask about what kind of business are you trying to acquire (I would consider this as another step to make sure you have solid knowledge about SF industry). In summary, maybe a slide or two in each subject. (2) get your hands on some deals. In this, you have two methods; intermediaries and direct sourcing. Some business brokers even have deals in their website. The key here is to gain some knowledge about deals. FYI, some investors might ask this in the first meeting as whether you looked at existing deals or not. (3) Build PPM. the Stanford primer has a draft PPM and you can use that as basis and tailor it to your needs. FYI, some investors would not actually meet before you send a PPM. (3) form LLC, and this step differs from region to region depending on where you're located. Here you might need to start looking for a lawyer assistance, and this differs from individuals and their needs. The Stanford primer has all the documents pertaining to forming LLC, shareholders agreement and subscription...etc. (4) Once you have investors soft commitments you will have tons of other questions and you will have built the basic knowledge framework to know where to find answers. On your second query, I would use google. Few notes on finding investors: (1) make sure they invest in the US (almost all do###-###-#### start by listing, then qualify, then reach out, then follow-up. And maintain a log (3) I would honestly avoid the months leading to and immediately after MBA programs graduation, cuz this is when search fund investment firms might get overwhelmed with searchers requests. Sorry for the long response, but hope it helps. If you have more questions, DM me. Good luck!

Reply by a searcher
from Emory University in Tucson, AZ, USA

References: 1) HBR Guide to Buying a Small Business: Think Big, Buy Small, Own Your Own Company. 2) Stanford Search Primer https://www.gsb.stanford.edu/experience/about/centers-institutes/ces/research/search-funds/primer

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