Until recently, I had thought that the search fund process consisted of two parts: finding a company to buy and then running it. But I was wrong. There are three distinct parts to a successful search fund: sourcing good companies in a well-defined industry segment, closing the purchase transaction, and then running the company.

It's easy to miss how important it is to actually close the deal, as crazy as that sounds. I've noticed some searchers who seem to have the ability to generate tons of LOIs but struggle to get any of these deals to the finish line and others who seem to have a much easier time closing. 

One of the elements of a successful search that is rarely talked about is the human element of buying a business from a founder. It's one thing to build a robust and effective deal-sourcing machine—getting companies under LOI is not easy but a doable task for most searchers—but actually closing the deal requires maturity and a real understanding of the seller's mindset at a deep level.

In general, sellers of businesses to search funders are completely bootstrapped as they build their assets over a long period. They aren't terribly sophisticated in terms of finance or management (wherein lies the upside). It's a huge emotional decision for them to sell, and the idea of doing so to a very young and potentially arrogant search funder may not come naturally to them.

As the buyer, you have to understand that to close the deal you need to stop thinking about squeezing the last nickel out of the price, running your models, and applying business school buzzwords; you need to start building real relationships with the seller that will get him or her across the bridge to a close.

Here are some practical ways that are completely outside the actual deal mechanics to make sure you get to the finish line with your seller. 

Searchfunder member Let the founder tell you the story of his or her business and life. You need to understand why he or she is selling but also why and how he or she started the business you are buying. That corporate history will inform you of what to do when you get the keys to the castle. By letting the seller talk for as long as he or she wants, you will also begin to build trust and let him or her know that you care about doing the right thing, well beyond the money aspect. It also tells him or her that you respect all that he or she knows and want to mine his or her wisdom (rather than coming in with a know-it-all attitude, which is a sure deal killer).

Searchfunder member. If you have a personal connection to the industry, make that clear what it is and why you care about what the seller’s company does and who his or her customers are. Put the search fund in context of your life story and make clear your motivations for wanting to buy and run his or her company. It's important to express that this is not a quick flip for you. The successful searcher views buying a company as a long-term play that may require relocating his or her family and pouring his or her heart and soul into continuing the seller's legacy for years to come. Don't be shy about saying all that. This is not a financial engineering exercise; it's a huge and serious commitment that you are prepared to make.  

Searchfunder memberThe search fund model is structured to put a bunch of experienced executives around the searcher. As a searcher, your youth is often a real weakness, and that goes double for international searches, where the young CEO is even less common. Proactively use your investors and/or your industry river guides in the closing process. Make sure that the seller meets them in person and knows that they aren't just selling to you but are selling to this team of people that includes a wealth of experience.

Searchfunder memberBeyond the personal relationship you build with the seller, try to prove your credibility. One way to do that is to show that you understand the seller’s business. If you’ve been to trade shows in the industry, know who the competitors are, and can talk with intelligence about the strengths and weaknesses of the product, it will improve your odds of closing the deal. 

Searchfunder memberSellers will have a wide variety of preferences in terms of their post-sale involvement, and so will you as the buyer. It’s important to talk about this early on in the negotiation. You want to think of the seller as a resource to you. As owner and CEO, set the ground rules so that your chances of success will not be diminished by interference by the former owner. The seller will also have a point of view regarding his employees. You don’t have to agree with him or her, but it’s important to listen carefully and to take the seller’s views into account.

Searchfunder memberThese kinds of transactions can take as long as or longer than M&A trades of much bigger companies. The seller isn’t likely to be sophisticated, so he or she will require extra handholding—and it’s emotional, so be patient. Don’t get pushy unless you want to lose the deal, but also be clear and firm on deal points you can’t bend on.

With these six concepts in mind hopefully you will have an easier time getting your search fund deal from LOI across the finish line to closed transaction.