European search - self funded vs traditional?

March 08, 2024

by a searcher from Ivey Business School at Western University in Amsterdam, Netherlands

I have had about 20 conversations with buyers (searchers), advisors and brokers, and funders across Europe. It seems there are quite some varying views on going down a traditional vs. self funded search with a business partner. My background: fractional CFO for software businesses, former VC and PE investor, worked in banking and corporate finance in the last recession.

I am looking to connect with funders (i.e. LPs who are funds or individuals) who have a proven track record of backing successful searchers outside of the US + exited buyers (searchers) of small businesses in the business services space - accounting, tax or legal. Referrals and strong (evidence-backed) opinions are highly appreciated!

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Reply by a searcher
from MCI in Linz, Österreich

I suggest looking into my published academic paper. I have done multiple qualitative interviews answering your very question: why is the search fund model not successful in Central Europe? Simple answer: not enough targets fulfilling the search fund criteria catalogue vs. enough funding alternatives for different forms of ETA. Find the full findings here: https://eber.uek.krakow.pl/index.php/eber/article/view/1450

Reply by a searcher
from Ludwig in München, Deutschland

My experience is that most funders/investors are agnostic in the sense that, as long as there is a good fit between the searcher and the searched industry, and they find the searcher suited, they go for it. So, I would assume you will not find investors specialized in the 'business services space - accounting, tax, or legal.' Additionally, there are a lot of investors in the European market who entered less than 5-7 years ago, so many do not (and timely cannot) have an exit - and for sure not in your very narrow industry. So, this criterion seems to limit the number of potential investors substantially.

I made the error of not considering the timeline in my investor search and mixing market understanding too much with the investor search - apart from the economics, the reason I ended up with a self-funded search. Excellent searchers close their funding in a few weeks, since everyone wants to invest. Investors will simply skip you if you need too long to raise funds, and the clock starts ticking with the first contact - I did not see this effect so strongly in VC and PE, where (according to my limited experience) you count in months, run rate or closing late may even be better due to the growth trajectory. So, it's better to go with a big bang and not to search too specifically for an investor profile, since this will cost you (on average) time you do not have.

However, if you are looking for investors, simply check the database here on Searchfunder as a starting point. Connecting with (in my case, German) searchers and investors on LinkedIn and checking/contacting their contacts also helped me a lot (basically, this is something like a "weak referral" since you see at least the active persons in the market and it helps in cold approaching).

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