Has the searchfund model become too saturated?

July 26, 2024

by an member from Stanford University in Dallas, TX, USA

Is the model becoming too saturated & how do you see it involving within the next 5-10 years?

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Reply by an intermediary
from University of Arizona in Denver, CO, USA

Yes, I think it is rather crowded with people who have fallen in love with the model and believe in those who said they believe in them as investors. Every Searcher has the same playbook which is big on their education but in far too many cases they really have no real world experience. Never managed people and assume that their MBA will get them by. Once a broker has been down the path with a Searcher they all look the same. They spend 90% of their time massaging the numbers rather than envisioning themselves in the business. Because they lack experience and have never made 'adult' decisions which affect the lives of staff and their families or made decisions with their money and future on the line I think they fail to grasp how unprepared they are. Those who approach it as partners are even less likely to find success in my opinion. It's a little like everyone getting jacked up by each other and feeding off the enthusiasm of each other (who also lack experience). There are some strong folks who will be successful not only in their search but in the business. I'm very lucky to be working with a few great ones. My advice to the majority is to drop the investors (false safety net who bring money but little else to the party) and buy a good business they can succeed in while using their funds. If you don't have real world experience then get some with a starter business and stop drinking the Kool-Aid.

Reply by a searcher
from The University of Chicago in Chicago, IL, United States

No. The market is not saturated. At times, the market may feel overcrowded. The biggest mistakes that I’ve recently seen searchers make: 1) Managing people - if you haven’t managed a team before, it is difficult to say that you’ll immediately be equipped to manage an entire company upon close. Sure, this can be learned over time but after a deal closes you have ONE SHOT to grow this business and add value. 2) Be unique - it helps to stick out from the crowd, ideally with your story and with a thesis backed search. The number of searchers in comparison to the universe of sellers is very small, but if all you want to buy is an MSP in Nashville or an HVAC business in Tampa, then of course you’re going to run into other searchers. 3) Volume and diversity of lead - so much of having a strong connection with a business owner is based upon timing (what kind of day are they having, what day of the week is it, etc.). In my experience, the solution is many touch points with differing tones, timing, and delivery methods. Opportunities come from proprietary outreach, industry experts, bankers, someone who you randomly meet at the gym, etc. To close yourself off to any of these with the assumption that you only need one is to your own peril.

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