Do you see potential for search acquisitions with the recent tech crash?

searcher profile

April 01, 2023

by a searcher from Columbia University - Columbia Business School in New York, NY, USA

Search fund acquisition targets have historically been small 10M-80M EBITDA targets in often obscure or traditional industries, often bought from an older generation. With the recent tech crash, however, there are a number of VC backed companies that are fairly new which are basically on the line this year. Many VCs are even asking some of their companies for their money back and a "graceful" exit.

Question - do folks here see any upside for searchers who would want to acquire a startup which can't raise a series B or C? Clearly a company with no product/market fit is not desirable, but perhaps there is something to salvage once you take out the enormous burn-rate incurred by many of the more irresponsible startups? Interested to hear what people think.

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Reply by a searcher
from New York University in New York, NY, USA
Justin the first thing is most search funds are targeting way smaller than 10m-80m EBITDA. It is mostly 1m-10m and probably titled towards the 1m-5m. There might be small carveouts or niche areas for a search to focus on tech companies. Venture backed companies even with a significant down round are valuated not by any means of profitability or cash flows at multiples I don't think it is prudent for a search strategy to go after. It doesn't mean someone shouldn't target them but a search target is a bit overreaching.
commentor profile
Reply by a searcher
from Cornell University in Salt Lake City, UT, USA
Search is built on buying a company with historical EBITDA. Finding a VC-backed company with this is going to be very difficult since they are all in growth mode and not profit-producing mode.

While you’re not going to be able to do a leveraged buyout of these companies, if you have other ways to fund the deal, there are always going to be companies on on a fund’s books that are dead weight in a fund.
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