Search Fund Accelerators
October 16, 2022
by a searcher from Rochester Institute of Technology in Atlanta, GA, USA
Has anyone been involved in a search fund accelerator before?
What was your experience?
I have heard pros and cons of them, but mostly the pros from lenders. Would love to hear about searcher experiences.
from McGill University in San Diego, CA, USA
1. Infrastructure - When you launch a search, you need to stand up a website, a CRM, a back office.. You need office space. You need to get set up with data vendors. You need to stand up an internship program. Accelerators have all of the infrastructure already set up. This enables searchers to spend a greater share of their time focusing on the search, and less of the time on administrative duties.
2. Playbooks/Learning from prior searchers - Accelerators are constantly documenting best practices, Talent development and mentorship are at the core of the model. This enables searchers to get up the curve a lot faster, and not make the same mistakes as prior searchers.
3. Mentorship - Accelerators have a long list of advisors, principals and prior searchers who take pride in mentoring/guiding/advising, as well as opening doors for you, going to management meetings with you, helping you structure the deal, etc.
4. Committed capital - Unlike the traditional model, accelerators have committed capital. When you find a deal, instead of having to pass the hat around to 13 investors, accelerators can move quickly (money has already been raised).
5. Deal team - The only thing worse than not doing a deal is doing a bad deal. Accelerators have a set of investment professionals to guide you through the entire process,
6. Ops Team - Once you take the CEO seat, accelerators will continue guiding/mentoring you. In the same way that an accelerator captures best practices throughout the search phase, they do the same after a business is bought. Those learnings and then shared with first time CEOs.
7. Economics - I can't speak for other accelerators but, at NGP, the economics are identical to the traditional model., so you aren't giving up anything. In fact, searchers have the ability to do bigger deals and bolt-on acquisitions. This increases the odds of a more meaningful economic outcome for searchers.
8. Access to a long list of service providers - You will need to hire a quality of earnings service provider, IT diligence providers, lawyers, and more, as well as source debt financing. Accelerators have strong relationships with the entire eco-system of service providers.
9. Community - Searching can be lonely. When you search at an accelerator, there are usually 5-6 other searchers who come to the same office as you, and are a constant source of support. Strong bonds/friendships are created as a result.
10. Boomerangs - When you partner with an accelerator, they have a CRM with tens of thousands of leads in hundreds of industries. It is common for business owners who were previously unready to sell to call back years later. Searchers on an Accelerator platform get access to those inbound inquiries.
There are more benefits, but these are the ones that immediately came to mind.
So you might be wondering... sounds great, but what do I give up? The accelerator model isn't for everyone. If a searcher has tight geographic constraints, would like to purchase a really small business (Sub $2M EBITDA), is agnostic to valuations, would like to purchase a business that tends to be outside the search fund strike zone (e.g. asset heavy, cyclical, heavy customer concentration, turn arounds, etc.), then it won't be the right fit. From a culture perspective, searchers on an accelerator platform are generally asked to devote some time to sharing best practices with incoming EIRs, providing interns with a 10/10 experience, helping the accelerator with hiring decisions, and several other Business Development initiatives. That won't appeal to everyone.
While some worry about their degree of autonomy they may have on a accelerator platform, in reality, it isn't all that different from the traditional model. In the end, when searchers take money from investors, they need to be aligned on risk/reward, and valuations. If there is alignment on Day 1, the autonomy issue fades (because both parties are aligned on where a searcher will be focusing their search efforts, and what constitutes good risk/reward).
from Embry in Orlando, FL, USA
A significant note to consider is to find an organization that specializes in search funders' searches. For instance, if the search funder is targeting a tech company, it is advisable to engage a group that is an expert in the tech industry. Such a group will prove more beneficial throughout the process and beyond. At times, we may consider non-tech accelerator opportunities if we have a junior partner with relevant experience in the industry