Funded searchers
January 28, 2020
by a searcher from University of North Carolina at Chapel Hill in San Francisco, CA, USA
I see a lot of posts where the searchers are self-funded. Is funding for search a thing still ?
January 28, 2020
by a searcher from University of North Carolina at Chapel Hill in San Francisco, CA, USA
I see a lot of posts where the searchers are self-funded. Is funding for search a thing still ?
from Dallas Baptist University in Atlanta, GA, USA
Though the funded search economics are indeed typically higher in the funded search (e.g. 25% ownership of $10M business = $2.5M vs. 100% ownership of $1M business) with a successful acquisition and eventual exit, the risk seems to be greater. They require an intensive, competitive, and potentially lengthy search, a willingness to relocate to and plant in any city based on the opportunity for nearly a decade, as well as probably diminished annual returns in lieu of the 'big payoff.'
Key factors for me in self-funding are to enable a geographic search (i.e. Atlanta), where A) I have an established professional & personal network, B) the economics of debt (~6-7% APR) vs. investor IRR targets###-###-#### %), C) cultural fit leading employees when eventually becoming CEO, and D) minimizing personal (i.e. family) disruption & therefore stress in shifting into CEO role and ramping up into the acquired business.
One of the potential, major trade-offs between funded search and self-funded search is the shift from being a partial owner and CEO in a larger company (i.e. traditional funded search) to being an owner-operator (i.e. self-funded in typically a smaller deal). The HBR book would say that a buying a smaller company with <$1.5M EBITDA is "buying a really good job" and is not the standard ETA recommended path. But the trade-offs may be worthwhile to retain the control, equity, and annual returns.
The bet is that you can streamline the operations + strategically grow the business (e.g. perhaps through roll-up acquisition(s)) so that you can afford to hire a general manager.
from University of Virginia in Washington Metropolitan Area, USA
What I find interesting is that we have a lot of statistics on success/failure rates and performance of these businesses from the traditional search community, along with the very limiting demographic of the typical searcher. But we don’t have the same stats on self-funded deals. Do self-funded searchers close on a deal faster? What is the median size of deal for comparison? What is the median time to exit? How does the growth rate compare? What is the speed to stability and growth? How does the return at exit compare? I’ve seen the stats on failure rates of all SBA funded loans vs traditional search funds - but I don’t think that is the best comparison. More data would be helpful as the search community, and this particular investment vehicle, continues to expand. What we know for sure is that one size does not fit all.