Is an MBA necessary for creating a Search Fund?
August 14, 2024
by a searcher from Kettering University (GMI) in Katy, TX, USA
As I have been apart of this community I have been very encouraged to pursue a search fund. As the road has been hard I wonder if my current skill set is enough. Any advice for search fund starters without an MBA? Will I be successful without it?
from University of Virginia in Richmond, VA, USA
1) planning cash
2) understanding and pivoting bottlenecks in processes
3) raising capital
4) being decisive in gray situations
if you have those four outside of an MBA then you may not need one to do search. But each of them is crucial to search.
from New York University in New York, NY, USA
I was a small business owner before business school and now I have an MBA, so I see both sides a bit. I also started the ETA club at school and am now a self-funded searcher.
Short answer is no an MBA is not necessary. People have been "searching" and buying businesses long before it was trendy and there was a fancy name for it. Long answer is an MBA can be very helpful depending on the type of search you're conducting.
If you're a self funded searcher and going the SBA route, it's definitely not needed. Honestly, it can hurt you in some ways. At the $250k - $750k SDE level, talking too "business school like" can be a massive turn off to the seller. Especially being in the small business world before school, I've learned that many people in our world distrust MBAs. They associate us with "private equity overlords coming in to fire everyone and cut costs". In many situations, assuming offers are similar, you will win a deal if you can prove you care about legacy, taking care of employees, etc. MBA doesn't scream "small business leader". It screams "corporate leader". It's all how you pitch it but I'd say even personally I don't talk much about my MBA when talking with potential sellers. I'm generalizing, but at this size of business I've met sellers that can't even tell you the amount of revenue they generated last year. Insane, I know. But that's why coming in too MBA heavy can be a disservice in this scenario.
In this scenario, if you can afford to search on your own, can afford the 10% down or can put it together with friends and family, the MBA means nothing.
If you're planning to raise a traditional search fund, the MBA matters a lot more.
In my opinion, this isn't because the MBA will give you magical CEO skills for a larger company. It's because traditional search investors 1) use the MBA as a "filter" because it's easier to compare candidates apples to apples (like any company would do) and 2) because MBAs are a stationary, easy to target audience. It's way cheaper to hit a few b schools for "deal flow" than it is to put out Google ads and hope to get qualified potential searchers.
You can 100% network with traditional search investors without the MBA. You can cold email, you can attend conferences, etc. But it will be a tougher sell because there are now more MBAs than ever before seeking traditional investment. If you come from a banking or deal associated background, you'll have an easier time getting funded even without the MBA. If you don't have an MBA and aren't former IB/PE, you really need to stand out and prove you want to be in this world. Happy to chat more about what that looks like if interested.
Summary: it's not needed, but you may need to hustle more without it.
That said, personally having an MBA has made me a more well-rounded operator. Everyone has their strengths and weaknesses, but my knowledge of finance and cash flow management (which I focused on in B-school) is SIGNIFICANTLY better than it was before b-school. Depending on the company you buy, that may or may not be a huge deal. You can obviously learn some of that on your own outside of school, hire someone, etc. But it's helpful to understand every division of your company so you can better manage your employees. Doesn't necessarily require an MBA, but that's some final food for thought.