Being at the end of my journey, I’ve decided to start for myself a « lessons-learn » account of my Searching experience in France and Belgium, then discovered there was a targeted way of sharing it with the community, so here is the first stab.

Note to the reader: my account of this experience of mine is very personal and very specific to the environment I attempted it in. It is important to understand that fundraising should be easier in geographies where the search for model has already been tried once. A peer in Germany, for instance, was up and running in 4 months 

My adventure, as many of you, started during the course of my INSEAD MBA###-###-#### where I discovered the very existence of what people call Entrepreneurship through acquisition (special special thanks to Timothy Beauvard for introducing that in INSEAD and, more recently, in Columbia) 

First thing I did was read everything (and I do mean everything) that was available at both GSB’s CES and IESE’s own publications. It took me 3 months to interact with enough people (Searchers and Investors alike) to form my own View on the key fundamentals :  

- Am I in tune with the risk-rewards of this type of venture? and do I have the expected skill-set and the mindset necessary to take over a small business?

In my case, I really needed to investigate, and ask for blunt feedback on this, coming from a pure Large-Cap environment 

- Is the geography where I have my network  suitable for a search fund model of investing? i.e.: is the number of businesses that are compatible with this venture big enough?

In my case this was not intuitive (Fr & Belgium have a weak general economic fabric, with heavy labor costs and quite constrained business regulations)

- How long can I sustain the fundraising effort and where do I draw the line between that approach and the self-funded approach?

On this one, I have discussed with great people in the community who went through very hard paths and still prevailed.

With the benefit of hindsight, I would say the key most important thing is to assess the relevance of your network in allowing you to have your first, anchor investor (the one who is seasoned in your sourcing geography. When approaching high-value prospects, if you do not have a strong pre-established relationship with them, then you can only do it when you have really a mature proposal that you have already committed to. In my case, I understood (through a number of Searchers and Investors) that I had to have my PPM, tools to source, incorporation and the first 4-5 sub-sector leads lists totally in place when I first approached someone who could be my anchor investor.

Indeed, as in any networking effort, negative vibes and and weak preparedness travel faster (through your network) than good first impressions and positive referrals.

The first 6 months

I proceeded to search for investors as soon as I had my key documents: my profile presentation across all media (Linkedin, first version of website, teaser, key elements of PPM). I started by reaching out to me my closest peers, mentors and former bosses. I quickly broadened to the entrepreneur’s community I knew (top 5 MBAs, Entrepreneurship associations and clubs and “level 2” contacts I obtained as a result of that.

I then started to realize that I had to get more progress before getting to my high value prospects, so I had to revert the networking effort in order to ramp-up sector analysis, and leads generation, super-polished investor presentation etc. In a nutshell, anything that could demonstrate that I didn't only "burn my bridges", but that I was in a position to look for a location and start engaging potential interns by Monday, if I obtained a commitment the Friday before.

People I approached in France were not enthused by the idea of paying for an option, for several reasons:

A lot of self-funded entrepreneurs were active and many considered that to be "equivalent" in terms of potential deals,

None of the people that were convinced about the relevance of my profile (I bowed out when I failed to do that)  did not feel enticed to secure an option before seeing a deal.

Coming from the European country which gave the word Entrepreneur to the world, to many, the idea of being paid to search was culturally shocking, and I didn't manage to highlight the value of addressing the management risk vs the cost of the option. It is indeed a French specificity to be very price sensitive when it comes to acquiring skill.

After about 100 on-to-ones over six months, and consistent trend of high value prospects being quite skeptical, I decided to go the other route and to self-fund my search for the next 18 months, which was both tight and with lower probability of success.

With the benefit of hindsight, I should've delayed moving to that phase until I having enough for 24 to 30 months: All in all, my sourcing ground had over 2000 companies that were fitting my basic criteria :  EBITDA margin over 15% AND above 1m EUR, more than 10 people in the company;  Despite aggressive processing, and lots of productivity efforts, I didn't manage to go through all the companies that I could've investigated.

The 12 months after that

I was set on a full-on search going both directly to companies that weren’t openly for sale, and going through sell-side brokers. Word of warning on the latter, you have to look the part and know the most efficient way of handling brokers, as many are simply an obstacle to the seller, rather than advisors.

I tried to be as disciplined as I could through the sourcing phase and I followed guidelines that I adapted from local entrepreneurs who had succeeded and failed buying companies in my geographies. In my case, that meant (in addition to the usual Search Fund boundaries*) bowing out as soon as:

- The EBITDA looked like it was going to be below 800k€ after adjustments. The same goes for EBITDA margins below 15%

- There was less than 15 people in the company

- There was any lethal risk that could not be mitigated at the closing.

To be clear, bowing out only meant stop investing time on the target, but keeping the discussion open.

Being a solo searcher, I kept in regular contact with my mentors as I found it invaluable to have that outside, independent view, as I was weary of the biases searchers report in this phase

Although on a shoestring budget, I managed to increase my productivity mid-way into this phase, with the help of two computer scientist friends, by building a crawler and setting up all sorts of routines in gathering and structuring data to score companies more efficiently. That being said, that did not help when contacting prospective targets, as I was still on my own (as opposed to having enrolled undergrad and grad trainees)

So although I started with a list of 2000 companies, I only ended up reaching out to about 100 of them, obtaining about 10 Info Memos (it’s not an Investment Memo unless you build the numbers!) and extending 4 LOI’s.

The last 6 months

In my personal case, this is happening now. I am still continuing to look for companies, albeit I now “put to sleep” opportunities much quicker as I know what walk away clause is being triggered pretty quickly. in the conversation.

I am also much more flexible on company’s sector and look into that on a case by case basis, going back to sub-sector sizing as soon as I run into a company that surprises me. I do have investors that would be very happy to provide capital, albeit we apply an inverse rate of risk appetite to the size of the company (the smaller the turnover, the smaller is the proportion of equity we look into putting, without ever over-leveraging)

More on this in a few months.

General Lessons learnt:

I am in no position to give advice at this stage, but what I go by in this last stretch of my endeavor, could be summed up in the following points : 

1. The level of sophistication in the target companies (and brokers, and even accountants) being low in our range of Turnover###-###-#### m€) it is important that you keep “bright line” type walk-away criterions. The most efficient process, IMHO, is one where you focus on checking that all of your walk-away criterions are absent from your target, moving forward in progressive levels of commitments

One anecdote for this is a target with which I had a great fit and good numbers overall, but where even the sell-side advisor couldn’t understand why the fact that the first customer representing 70% of the past 3 years sales was a problem (!)

2. The search fund route is the lowest risk route for the searcher and the only that dampens the cost of opportunity for him. After all, you can find good “buy-side” brokers for about 20k€ + a huge success fee in both France and Belgium, so if you are going to put your skill-set into the search, you investors should value that.

I would spare you the specificity France and Belgium (you can contact me for more on that) but I would say that anytime you start in a new geography the best approach is to focus on the investors who know you best, over the investors who have more experience and/or Capital. Once you have committed one or two investors, the momentum would be such that you can reach to the other ones pretty easily.

3. In both the search fund and the self-funded routes, keeping the momentum going with your investors is crucial as interest dies off pretty quickly.

4. It is important to get support each step of the way (personal and professional, as it is close to being your only risk mitigation). The investors are not entirely aligned with your interests unless they are seriously conservative with their entry criterions. I do recommend having a seasoned searcher or a small-business entrepreneur as an “independent” mentor.

5. Looking for a company to buy should be already a motivator in and of itself: you can’t spend 24 months doing something you hate and/or dread, so you should definitely check whether you can cope with it before committing to the search fund model.

6. When moving into the Due Diligence, you get what you pay for: simple businesses do not necessarily have simple, optimized legal and operational structure, there might be quite a bit of tidying up at the closing, and you are not the right person (unless you are a business law major) to figure that out. As always, economic incentives’ dynamics are a healthier protection than a contractual clause.

7. You need to enter this game with the understanding that ending up not buying a business is not a failure, only buying the wrong business is.

Coming up, practical tools&tricks for the sourcing and deal structuring that I used (most of it is usable across the Eurozone, hopefully also elsewhere)