Questions from a prospective searcher in London
March 12, 2019
by a searcher from INSEAD in London, UK
I very recently moved to London, UK after graduating from INSEAD and started investigating paths to raising my first fund here. I thought I'd share a running list of questions on my mind. Thus far, my interactions with the search community have been incredibly insightful. Happy to meet with local search fund entrepreneurs (successful, unsuccessful, or unsure) at any stage of their process. Any comments, or interest in meeting, please get in touch.
Initial approach and fundraising:
How did you plan your initial approach (advice vs. cash? Individuals vs. institutions?)
In terms of preparation at the first few meetings, what did prospective investors like to see/hear about?
How did your process change once you received your the first institutional backing?
What were your considerations in the selection of investors? Is there anything you would do differently in hindsight?
Did you notice differences between UK, EU and US investors?
What was your approach when constructing your search budget?
Setting-up the search entity
At what point did you seek legal advice?
At what point did you incorporate the search entity? How did you structure the entity in the UK?
Were there any specific legal requirements from institutional investors in various jurisdictions (UK, EU, US)?
Were there any unique legal procedures for individual investors?
How much did initial legal fees amount to? Are there any helpful legal fee payments structures to consider?
Which London law firms are familiar with the search fund model?
Did the UK search entity require the formation of a board?
Search operation
What IT/business services did you find most helpful?
Did you hire any help? Interns, paid/unpaid?
What were the legal considerations when hiring help?
Due Diligence & financing
Did you hire specific technical, legal or accounting services as part of your due diligence process?
What was your approach in lining up debt financing for the deal?
How did you manage the risk of a financing channel drying up at the last minute?
Did you make use of seller debt? How were the terms structured? How was this generally received?
Upon closing, what was your procedure in closing out the search entity?
General/Other
What has the toughest part of your search been?
What did you learn the hard way?
Is there anything else you think someone at my stage of the search should be considering?
from Harvard University in New York, NY, USA
The best way to tackle all of your questions, is that you must first figure out what exactly you want to do, and what you are trying to get out of this first fund. That will determine your scope, your size, everything. For example, I do not have an MBA or direct investment/PE experience. I knew I needed to establish a proof of concept, with a relatively small deal -- the first search fund I'm raising is not the one I plan on retiring on. Therefore, I knew I would only be focusing on a friends/family fund raising round. This cut out SIGNIFICANTLY the hassle of having to deal with institutional investors, and gives me the ability to retain full control over the search process and return profile (no preferred returns, no vested equity, etc). Doing it this way also dramatically cut down on the requisite legal services I need, and I think it's important not to get bogged down in the lawyer stuff when you are doing too much. In fact, if you keep it small, you don't really need a lawyer until you're pretty far in the due diligence process.
All in all, how you approach the search depends on you. If you feel super comfortable and confident to do a big fund raise and a big deal out of the gates, then absolutely go for it. Just know that it comes with a world of issues and you're going to need a lot of outside (often times, paid) assistance. If you want to keep it small, then you can simplify things a lot for yourself.
Your questions seem to indicate, to me at least, that you're trying to take the plunge w/o really getting your footing set. I'd ask myself that question first.
from University of Southern California in North Palm Beach, FL, USA