Searchers: Would you take student/alum money?

September 08, 2021

by a searcher from Harvard University - Harvard Business School in Cambridge, MA, USA

CONTEXT:

I am considering putting together a club in my MBA program to invest in searcher deals. We'd aggregate small checks ($5k to $25k) from current students and recent alums in an LLC. Searchers could then pitch the club to invest as an LP in deals. The club would likely invest on equal terms with any other LP. The two goals of the club would be (i) generate attractive returns (ii) give future searchers experience sitting on investor side of the table. The club would not take a board seat, for obvious reasons.

QUESTIONS TO SEARCHERS:

1. Do you think being part of such a club would have prepared you better for search?
2. How interested would you be to have this club as an LP on a scale 1-10? Why? What would be your top hesitations?
3. Is there anything the club could offer you to get over those hesitations? In particular, is there a way we could help you close?
4. A bit of context about you (in particular funded/self-funded)

Reply by an investor
from University of Nebraska in Austin, TX, USA

Nathaniel - I actually like the concept if the intent is education and in the context of MBA program. It's pretty easy to create an LLC (SPV) and standard operating agreement. Amount invested might be annoying from a tax and # of investors perspective, but if the focus is to learn, then this could be a good venue and be valuable. I think a better approach would be: Get $10K-$20K from 5-10 people, $100K that gets funded at the start of the semester. You review deals and find 1 investment to invest the $100K in in a set time period (4 months), otherwise money gets refunded. Create some sort of simple voting mechanism with a filtering mechanism/target company details agreed to upon funding (must be of this size, in these industries, etc). You could provide a greater split for the person who sources the deal. You'd want to make sure you could invest $100K as then you appeal to every self-funded searcher as that's an ideal minimum check size many times. Obviously a lot of work in the sake of education, and would probably end up on the lead's shoulders to do the work, just to give other people the benefit of the deal. Have fun!

Reply by a searcher
from Harvard University in Cambridge, MA, USA

Closing the loop here... the feedback I got offline is that this is a poor risk for searchers trying to close a deal. The feedback is roughly "If I have a good deal then there are lots of people I can ask for money. Each person I tell is a bit of a risk for me, since they may leverage my research in the same industry if the deal breaks. Presenting my deal to ~40 students many who are a few months from searching is too much risk for little value."

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