Ending my traditional search for another opportunity?

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June 08, 2023

by a searcher from University of Maryland - Robert H. Smith School of Business in Washington, DC, USA

I raised a traditional search fund but was offered to join a startup in a leadership role with significant equity/salary and have to take the opportunity. Is it possible to stop my traditional search/end my fund? I have not acquired a company yet. Will my investors be upset?

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Reply by an investor
from Stanford University in Bellevue, WA, USA
I did my search fund in 1998 so a long time ago. I returned the remaining capital after 2 years of searching. It was the beginning of 2000 during the Internet bubble and I told them it felt like the wrong time to buy a business. Valuations felt too high as the stock market was soaring. Almost all the investors were understanding and a couple even offered to back whatever I decided to do next. Obviously, they were disappointed with the loss of capital. I only remember one investor expressing anger. It was only after I had made the decision to return the money that I started looking for a job.

I even considered telling the investors I would pay them back once I made enough money. Professor Grousbeck felt that was unnecessary as the investors were sophisticated and understood the risks. Even still, I felt bad then and still do to this day.

In your case, it may depend on how you frame it. If I was your investor and you told me you were going to stop searching and return the money because of market conditions or that your heart was no longer in it, I would be very understanding, The search fund path is difficult. But if you told me you were quitting and returning the money because you got a better opportunity to do something else, I would have a very negative view of that. In some ways, it would feel like a betrayal of my trust / faith in you.
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Reply by a searcher
from Northwestern University in Evanston, IL, USA
Ending your traditional search fund to join a startup in a leadership role is a big decision, but it's entirely feasible. The key is to review any legal commitments with your investors and approach them with clear, honest communication about your new opportunity. Be upfront about the financial implications and your reasons for making this move. While some investors might be disappointed, others could be understanding, especially if you present the startup's potential convincingly. Make sure to seek legal and financial advice to navigate this transition smoothly, keeping future relationships with these investors in mind. Remember, it's all about balancing your professional goals with your obligations to your investors.
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