Narrow Search by Geography

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November 05, 2018

by a searcher from IE Business School in Longmont, CO, USA

I'm in the research phase exploring the search fund model. I'm wondering how you have thought through the issue of narrowing your search based on geography. Of course there are many variable to consider within this question (perhaps New York would offer more opportunities than Oklahoma City). In my particular case, I'm trying to understand how realistic it would be to design a search around a single mid-western US state (Iowa). Do you think that this is an important part of designing your quality of life, or does it result in a deal flow too low to support an effective search? If you do support a geographically based search, what criteria would you consider to be key?

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Reply by a searcher
from University of California, Los Angeles in Honolulu, HI, USA
You can find deals in a narrow geographic focus if you are flexible on industry and open to unconventional opportunities. I had to work hard for deal flow, and focused on networking with trusted advisers (consultants, insurance brokers, accountants, attorneys, bankers) for referrals, because there weren't many brokers who focused on the same narrow geographical area. If you are already established in your area of choice, you will have credibility with your potential referral network, which will save you time and effort in getting referrals because you're a known quantity in your area.

I don't believe the conventional search fund investment community is interested in searchers with narrow geographical range, so prepare to self-fund your search. However, the network you build in sourcing your deal could turn out to be very valuable. If the deal you find is a good one, you should be able to raise capital through the same network.

Developing industry investment theses will be almost worthless in a narrow geographic search, but having rough parameters will be necessary to filter out poor prospects. Instead of having parameters that created a tight screen, I defined what I didn't want (no B2C, no F&B, no retail, no tech, no construction/trades, minimum size), and closed on a deal in 16 months.
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Reply by a searcher
from Monash University in San Francisco, CA, USA
There would be some very easy market sizing you could do with Linkedin search by Accounts (companies) by rev size / employee count that would give you a good indication of # businesses o your target size in that geography.

Then you could combine it with the average seach to close ratios from the 2018 Stanford Search fund survey https://www.gsb.stanford.edu/faculty-research/case-studies/2018-search-fund-study-selected-observations

to try and ballpark the maths of "are there enough target companies in that locality to facilitate a successful search process"
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