Pros and Cons of Long Term Hold Search Fund

by a searcher from Yale University - School of Management

1 year ago

Hi everyone, 

As i begin to solidify my search strategy one of the things that I've come across is rather than launching a traditional search fund, launching a LTH permanent capital (committed capital) vehicle. The thought process here would be to make a series of small acquisitions over time within a particular industry/system with some diversification potential long term. Would anyone be willing to share their thoughts / be willing to chat about the pros and cons and how to go about doing that. 

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searcher from The University of North Carolina at Chapel Hill - Kenan-Flagler Business School

This is the model I am executing with a partner and have found it is more than possible with SBA financing. 500k EBITDA is about the minimum possible and depends on the multiples of course.

I'm also trying to learn more about class B, non-voting, preferred shares as other methods of long-term/permanent investment strategies for some investors. Haven't sought out any investors in that world yet but would love to learn of any!

1 year ago | like reply | 0 likes

searcher from The University of Chicago - Booth School of Business

Vikas, I really like this idea. As a mid-career executive, I'm a non-traditional searcher and am still in the midst of deciding between a self-funded or investor-funded search. The preliminary feedback that I've gotten is that it will be difficult for me to find support for an investor-funded search. Given that, I believe an attractive path will be to do a self-funded search for a company that I can also finance myself. Using SBA (or friendly commercial bank) financing, I believe it will be possible to thread the needle of finding a business that will generate sufficient cash flow to fund the acquisition debt and support my modest lifestyle. If I am able to do that once and get that business in a position to run with more limited oversight (a couple of days per week), it seems doing that again with a second business makes sense. I understand why the goal of search investment is often an exit, but I think there is something to be said for consistent ownership and gradually improving a company over time.

Episode 1 of the Think Like an Owner podcast is an interview with Trish Higgins who, along with her husband, is executing this exact strategy with simple, slow-growth businesses. I really admire their approach.

My email is --@----.com if you'd like to reach out and discuss further, and best of luck to you.

SP

1 year ago | like reply | 0 likes

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