I’m a capitalist. A progressive one, who believes in freedom of speech and the press. I believe in human rights for all, irrespective of the color of your skin, your gender, your sexual preference, your religion, your ethnicity, or what country you happened to be born in.
I also believe in the importance of small- and medium-sized businesses in the creation of good jobs that produce a vibrant economy characterized by a strong middle class.
We live in a really, really crazy world right now. Sometimes, I get depressed about the state of politics across the globe and here at home—so depressed, I don’t know what to do. I worry about our collective future and the fascist impulse to pit one against another, to regress to a dangerous form of nationalism and the systematic destruction of our freedoms and human rights.
Working with the brightest young minds to find an attractive business to buy and helping them acquire, run, and grow it always lifts my spirits. As an ex-CFO and ex-venture capitalist, I increasingly find myself devoting my time to mentoring young CEOs in the search fund ecosystem. Sure, I believe in the asset class from an investment standpoint. Over 30 years, returns have averaged more than 33%. But I have a far deeper motivation for devoting my time too.
Here in the United States, where job creation is certainly still crucially important, I am inspired by the young CEOs I work with and companies they run. I invested in an SaaS EHR solution for behavioral health organizations; a company that provides over a thousand hospitals with equipment planning, budgeting, and tracking system software; the dominant business software solution for the salon industry, with an install base of over 12,000; and a leader in revenue management for addiction and behavioral health providers.
Each of these search fund leaders is making a real difference by building a strong and growing company, often servicing an underlying client base that plays an important role in the health and well-being of our country. As these companies grow, they supply employment opportunities and wealth creation, not just for companies’ owners, but the employees we recruit who are a crucial part of our corporate family.
Even more poignantly, I find inspiration in the face of a world too often characterized by attempts to control the press, corruption, and a tilt towards fascist ideals in places like Mexico, the Dominican Republic, Guatemala, Brazil, and Colombia, where I am also an investor in search fund acquisitions.
Social justice and top business schools, like Harvard or Stanford, might seem like strange bedfellows. But I am tremendously moved by the kid born in Latin America who somehow finds his or her way to a top United States business school. And upon graduation, his or her instinct is to go home to buy, run, and grow a business that gives jobs and economic development to his or her country.
As a capitalist and progressive, it seems me that one of the best things we can do in the United States is to supply a top-notch business education to foreign nationals who aspire to make an impact at home. And it’s one way the best and brightest from the developing world can advance the ball economically, not only for their people, but also to fight corruption and fascism. Vibrant modern companies are good for everyone and rely on rational legal and government institutions. It doesn’t mean the world can’t still go dark, but at the very least, these young people are providing shining examples of what the light looks like.
Perhaps the most successful international search fund company to date provides financial services to small- and medium-sized business and federal employees in Mexico and Columbia. The direct job creation inside Alpha Credit has reached the thousands, which does not count the indirect impact of financial services provided to people and businesses in every state of Mexico and most of Colombia. Interest rates in Mexico are high because consumer and small business loans are just beginning to be made. There is plenty of room to make money in a professionally managed company of scale. But success depends continually finding innovative ways to access capital to lend. It also depends on systematic underwriting that keeps default rates very low. Alpha Credit has blossomed because they have done a great job at both of these things.
In the Dominican Republic, I’m on the board of a business outsourcing company that specializes in working with U.S.-based medical imaging organizations. We currently employ almost 500 call center agents, a job that is viewed as very good, split between locations in Santo Domingo and Santiago. Like all the other search fund acquisitions, the CEO has gradually built a senior management team capable of scaling the operation. I am extremely close to the CEO, as I was his closest advisor during the search process, and both he and I attended the Yale School of Management.
In addition, I’m the only non-Guatemalan investor in the largest door manufacturer in Central America. The CEO went to Harvard Business School and then home to Guatemala to search for a business to buy. He approached me because of my intimate involvement in Alpha Credit. We have created over 300 jobs at our door factory, good jobs that support over 300 families, many of who might otherwise live in poverty. And the company is growing rapidly as the CEO applies modern manufacturing techniques to the business, builds new products, and opens new markets.
In Brazil, one sure way to make it is to become a medical doctor. Students are admitted to medical school directly from high school based on an exam. The competition to get into public medical schools, with affordable tuition, is fierce. It’s harder to get into a public medical school in Brazil than Harvard Medical School here in the U.S. We own the premier test preparation company for the medical school entrance exam in Brazil. Our students are in class at our schools eight hours a day, five days a week. Their success in gaining entrance to medical school is unparalleled. The CEO, who went to HBS, is rapidly expanding the company by opening new schools in geographies adjacent to our existing schools to help even more kids get into medical school. And, like the other CEOs, he has done a great job building a first-rate management team to help him systematize and scale the operation.
The search fund ecosystem is a way to weaponize capitalism against the stupidity that seems so prevalent in our world right now. Great young people are inspired to build great companies that foster economic growth and, by their very existence, foster democratic norms.
I am very happy to make a killing on my search fund investments. But more than that, I hope to do my part—or, more accurately, do what I can to help these young leaders do their part—in advancing civilization, at home and abroad.