Hybrid Search Model Structures

December 10, 2021

by a searcher from Lousiana State University in Houston, TX, USA

I am contemplating a search that would be local or in a tight region. However, I am in one of the largest USA cities. With that, the traditional search fund model is pretty much out of the picture.

I'm wondering if anyone has had any success executing a hybrid search? My strategy will be to go to investors once I have deals under LOI and, if the deal moves forward to request capital for due diligence. Would investors consider this? If so, would they be the traditional SF investors?

Essentially my search would be similar to a traditional search with a constrained region, no salary, and raising the due diligence capital on an ad hoc basis.

Is this possible? If not, what are some of the popular hybrid models?

Reply by a searcher
from Boston College in Newport, RI, USA

I don't have experience trying this myself, but I think you'll have a hard time going to investors to raise money to cover due diligence costs. Once you close a deal, you can get reimbursed for your due diligence costs from investor proceeds.

However, if the deal doesn't close, any due diligence costs would be dead deal expenses. That's just the cost of doing business. IF you really need to, I'd recommend trying to hit up friends/family for a loan to cover those expenses, not asking investors to front the money for diligence expenses that they'd have to eat if the deal falls through.

Reply by an investor
from Northwestern University in Chicago, IL, USA

You are describing a self funded search. If the market is large enough this is certainly feasible. The challenge is that there isn't a wide range of businesses in any specific industry. So you need to know a little bit about a lot of different industries. Traditional search allows you to go deep on 1-4 industries across a wide geographic region.

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