What did you do 12-24 months in advance of launching your search fund?

searcher profile

April 17, 2018

by a searcher from Northwestern University - Kellogg School of Management in 4001 N Greenview Ave, Chicago, IL 60613, USA

I'm still a year or two out from taking the plunge, and am curious to hear best practices as to what current and prospective searches have accomplished in this prep period.

My current plan:

  1. -continue networking with current searchers to learn more about their experience
  2. -build a database of intermediaries and deal partners
  3. -establish an investment thesis focus on a select number of industries for my initial focus
  4. -refine a deal model to ensure the economics align with my desired target size and funding dynamics
  5. -get the Southwest Companion pass (check!)

Any other key areas I'm missing?

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commentor profile
Reply by a searcher
from University of Pennsylvania in Chicago, IL, USA
Two quick comments I would offer is think about brokered deals vs. proprietary. No right or wrong answer. Will you pursue one vs. the other or both? Vastly different sourcing requirements depending on which side you will focus on more. You mentioned target size, and I think that is a big consideration. Smaller company means that it can be bought with SBA debt and a relatively small equity stake. Fewer stakeholders mean you can move faster in every regard. Small companies need to be able to duck and parry to thrive sometimes. There is a downside to small though and that is fewer resources in every respect. Going larger can take longer, involve more parties and be more competitive. Upside to going larger is that there is more management "infrastructure" and business systems typically in place so that you can be an executive on day 1 instead of wearing a 100 different hats (Ops Manager, CEO, CFO, Customer Service, etc. etc.) Follow Buffet's lead and never get involved in auctions. Good luck!
commentor profile
Reply by a searcher
from The University of Chicago in Cleveland, OH, USA
Under "refine a deal model," make sure you understand how participating preferred stock with an 8% coupon works. I think a lot of would-be searchers don't, and this structure has major implications for your return profile versus that of your investors. Also, I would recommend putting some serious thought in to what the best funding/support model is for you personally (i.e., traditional, self funded, incubated, family office, PE sponsored, etc.). Talk to people who are involved in each of these models and make as informed a decision as you can. Just my 2 cents.
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