NOTES & TIPS: SEARCH FUND Q&A SESSION
I’m a recent joiner to the community, a recent MBA from HEC Paris preparing to launch a SF. Recently I attended a SF Q&A conference hosted by a leading European business school and I just wanted to share some notes that I took. Hope this bit of insight can help others!
How to be a good searcher 1. Completely understand the SF model
- Show that you know your country’s dynamics well
- Show that you have the research skills needed to land the acquisition company
Standing out during the fundraising phase Perform market research while you’re in the early stage. It’s not necessarily about getting a certain output at this stage but about proving (to yourself and others) that you can really do the job – because this is what you’ll be doing for the next 24 months! Treat the fundraising process as a long interview process where you can make the investor comfortable with you and your skills.
Finding an industry It’s not as much about whether you have vast experience in a specific industry -- it’s more about finding high performers who can learn quickly about any industry (what’s driving growth, innovation, etc.). Investors want to find those who would be able to make big changes in an acquisition quickly (ideally within 2 years): developing a new strategy and a new way to lead the company.
Writing the PPM While it is important to follow a standard PPM, investors perceive the effort that searchers put into this document and want to see if all the dots connect. Comply with format (make a nice and appealing doc) and show how your past is connected with your future. Show that you have a) the ability to find a business (a very specific skill) and b) the ability to run a business (another very specific skill). Try to reflect your story and background (highlight specific industry experiences).
Important financial aspects of a target to consider Having a large part of recurring revenue is very important. Many search companies had to shut down due to the recent global events and the majority of those were ones that had little recurring revenue. Don’t look simply for subscriptions or long-term contracts – look for repeatable revenue, what really makes customers come back again and again.
I found the perfect company but investors don’t like it, now what? It may be time to look for another company. Investors usually have good eyes to identify or discriminate companies and if it’s something that they like, they can permeate their experience with their own network. However, don’t be afraid to follow your gut, because at the end of the day, the one who’s putting in his life’s most productive years into this is you.
Considerations about your investors when building your cap table Having an idea of your investor base is very useful: ideally you’d want a blend of an investor base who will not only support you but also challenge you. Having former searchers is very recommended. Also, don’t worry so much about whether some investors in the initial round won’t be able to come in for the acquisition round. There is an increasing number of investors out there who specialize in equity gaps to fill in for these first-round investors who don’t make it for the acquisition.