Thoughts on raising a fund during Covid-19?

April 23, 2020

by a searcher from University of Cambridge in Windsor SL4, UK

Hi All! I'm new here and have been considering raising a UK based search fund since finishing business school last year. With the current Covid-19 induced market decline, I'm considering this a good time to start looking for resilient businesses in a low multiple environment - is this a fair assumption and does it reflect search fund investor sentiment? And if so, could the SF model under current circumstance be adapted to include distressed yet surviving prospects and not just those experiencing continued growth? With all the Death, Destitution and Divorce sadly happening, there should be an expected increase in motivated sellers and good discounts to pick up by the time recovery starts. Or is it better to wait for this contraction phase to end before raising a new fund?

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Reply by a searcher
from University of Cambridge in Windsor SL4, UK

Thanks for following up Michael. I am seeing a mixed response from the number of conversations I've recently had in the UK; traditional investors are definitely more cautious for the fund stage with some even suggesting waiting 4-6 months before getting back to them for raising a fund, but most are still very happy to look at the right deals - the usually preferred 'eternal profitable' SF types (mostly). As for searchers, one traditional searcher has reportedly returned his funds that were raised just before the pandemic, while another just raised his SF last month. And it's no surrise that a number of people are finding the self-funded model increasingly attractive as it allows for more deal type flexibility.
I've personally been more inclined towards the traditional model and my takeaway is that it's still possible to do a traditional search if pushed hard as evidenced by the June raise. I therefore plan to formally start reaching out to investors with a PPM by next month and can then hopefully update this thread with my direct experince.

Reply by a searcher
from SKEMA Business School in Dubai - United Arab Emirates

Hi Asad, I have exactly the same question as I start looking to raise a fund for a search in the US market. From the few exchanges I had recently, I understand that there is still an appetite but investors will be more selective than pre-COVID. If you look at it from a cycle perspective, it will take you 3-6months to raise and 18-24months to close. In 2 years either the economy will have recovered or it will be recovering. So from an investor perspective, the question will be more on your capacity to navigate a search and be able to source and close during those challenging times.

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