Generic questions from a solo searcher just starting out

searcher profile

October 22, 2018

by a searcher from Harvard University in New York, NY, USA

I am a new solo searcher doing a self funded search. The entire search fund model is extremely appealing to me, and I've settled on pursuing this after 8+ years in the financial services industry. As this is my first venture into this space, I plan on not following the traditional search model, and instead only do a friends/family fund raise for the first deal. Before I get started, I just have a couple basic questions for the experienced searchers out there:

1. When did you guys get an accountant/lawyer? Was it before you solicited money, during, or after?
2. Is it practical, especially since I'm doing a F/F raise, to forgo all the legal stuff and just collect money upfront and wait until after the search process is completed to draft all the legal docs?
3. How detailed were your pitch materials? Did everyone have very specific industries or types of businesses they were targeting when pitching to investors, or did anyone leave the search criteria purposely somewhat vague so as to not limit your search parameters? How did potential investors respond to that?
4. I am looking for a somewhat smaller deal -- total EV ~$3mm. What is the typical EBITDA multiple companies in this size area trade at?

Thanks in advance!

43
16
615
Replies
16
commentor profile
Reply by an intermediary
from Indian Institute of Technology, Bombay in New York, NY, USA
Hi Long, it is I think even more important to figure out what your friends and family are going to get. So I think you need some sort of a plan - and a pitch and the legal docs for your friends and family. Afterall, you don't want to make them enemies due to a misunderstanding. In terms of EBITDA multiple, for a business with EV of about 3 M, I would say that very roughly you are generally looking at EBITDA multiple between about 3 to about 4 or slightly higher than 4. Of course depends on how strong the business is, past history, customer concentration, recurring revenue, industry it is in, competition, etc. I would think that you may want to focus on industries or fields that you are interested in rather than making it very general. That will help you focus on your goals as well help you raise the funds. Even to friends and family, you should use a professional pitch just like you would do with outside investors, and not take them for granted. Also, since the search for the right business can take longer than you think, I am not sure if you want to collect the money upfront but rather get a commitment upfront and then the money when you need it. Perhaps if the business is strong, a bank loan may also be a good idea.
commentor profile
Reply by an admin
from Stanford University in Honolulu, HI, USA
Long - Here are some posts that you may find useful:

The Search Fund Pitch Deck
https://www.searchfunder.com/article/viewarticle/160

Interview: Top Legal Issues Searchers Face
Searchfunder Interview of Jon Herzog, Part I
https://www.searchfunder.com/article/viewarticle/1041

What Did You Do###-###-#### Months In Advance Of Launching Your Search Fund?
https://www.searchfunder.com/article/viewarticle/1378
commentor profile
+14 more replies.
Join the discussion