why we disqualify "project-based" businesses

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July 27, 2021

by an investor from INSEAD in Singapore

You've heard the term "recurring revenue" used frequently in search fund circles. Companies with highly recurring revenue can make great targets for search funds.

At the other end of the spectrum are businesses that generate non-recurring revenue, often from one-off projects. We call these "project-based" businesses. In this post I offer some guidance on how to think about these businesses:

https://www.smeventures.com/insights/why-project-based-businesses-generally-dont-make-great-search-fund-deals

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Reply by a searcher
from University of North Texas in Campbell River, BC, Canada
While I think this view point article is interesting, I would add one point with respect to the DD process. Even when you see a project based business, it is, in my opinion, still worth a look and running the numbers because:
A lot of times that project based founder can't see beyond the project where your fresh eyes can. Does the Razor/Razor blade model apply? Is there an expansion or pivot that gets the project into a SaaS model or pivot with the project/product into another vertical where ARR is a possibility?

There are no absolutes and part of the search fund adventure is the freedom to think outside the box/current model without the daily grind to worry about.
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Reply by a searcher
from University of New South Wales in Melbourne VIC, Australia
Agree, great post. I have worked previously with a CEO who implemented transformations from project based revenue into recurring revenue. Nice if you can pull it off.
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