Search Funds: How Smart Founders Secretly Launch Companies

Summary

The podcast host Ryan interviews Carl, an M&A expert, about search funds - a method for entrepreneurs to acquire existing companies instead of building from scratch. Carl explains the search fund model, including equity structures aligning incentives between investors and operators. He outlines best practices like extensive research and community outreach to set up a search fund for success. Carl discusses global search fund market trends and maturity levels, noting big opportunities as baby boomer business owners near retirement with no succession plans. He advises ambitious professionals to explore buying a business, knowing their goals and focusing their search.

Takeaways

• 😀 The show covers strategies for raising money, launching businesses, and achieving success
• 👨‍💼 Carl Lundberg is a CEO specialized in acquisitions, search funds, and management buy-ins
• 💰 Search funds help entrepreneurs buy companies by raising capital during the search period
• ⚖️ Equity incentives align stakeholders, but failing to do searches properly can cause losing deals
• 🔍 Self-funded searchers use personal capital vs. traditional searchers who raise external funds
• 🤝 Win-win deals meet seller succession needs and provide growth potential for searchers
• 🚀 The US search fund ecosystem leads globally but the UK market has strong opportunities
• 📈 Baby boomer business owners nearing retirement spur demand for entrepreneurial buyers
• 🔎 Industry knowledge, strategy and preparation increase likelihood of search fund success
• 🌎 The search community holds conferences and events for broader awareness and support

Q & A

What is a search fund?

A search fund is where an entrepreneur or group of entrepreneurs raise money to fund the search process to find and acquire a business to run. There are traditional search funds where the money is raised from investors, and self-funded searchers who fund the search themselves.

How much money is typically raised for a traditional search fund?

Between $300,000 and $600,000 is typically raised to cover costs like the entrepreneur's salary, software, travel, and due diligence during the search period.

What return do search fund investors typically target?

Search fund investors typically target a 35% IRR. They get a 50% uplift on their search capital when a deal is made, preferred shares with 8-12% dividend in the acquired company, and the majority of the common equity.

What equity does the search fund entrepreneur usually get?

The searcher usually gets 8-10% of the common equity upfront, another 8-10% that vests over time if they stay in a management role, and another 8-10% that vests based on IRR targets being hit between 20-35%.

How can searchers avoid losing in the early days?

Getting advice from experienced search fund investors, sticking to objective criteria instead of emotional attachment, and being willing to walk away from bad deals early instead of falling prey to sunk cost fallacy.

How does the search fund market differ geographically?

The US market is 10-15 years ahead in maturity compared to Europe. Government programs, business schools, and investor understanding make search funds more common in the US. Europe is growing fast though, especially Spain.

Why is there a good opportunity for search funds in the UK?

There are many profitable small businesses run by baby boomer founders approaching retirement age that could benefit from new operators and succession planning through a search fund acquisition.

What experience helps search fund entrepreneurs be successful?

Having experience in the industry of the acquired company helps build trust and credibility with selling founders to nurture the business. Operational experience also helps improve the business.

What financial metrics should searchers look for in targets?

10-30% EBITDA margins, high correlation between revenue and EBITDA showing operational leverage, stable cash flows.

What resources exist for learning more about search funds?

The Search Investment Group self-funded searcher study, the International Search Fund Centre conferences, and the Entrepreneurship Through Acquisition awards in London.

Outlines

00:00

🤝 How to set up equity incentives for search fund investors and entrepreneurs

This paragraph discusses how to structure equity incentives between search fund investors and the entrepreneur/searcher. It goes over typical equity splits, including preference shares for investors (8-12% dividend) and ordinary shares for the entrepreneur (8-10% initially, plus additional shares that vest over time based on continued involvement and IRR targets). This aligns incentives and ensures the entrepreneur has enough equity upside through carried interest.

05:02

😊 Why search funds benefit both operators and investors

This paragraph explains why the search fund model is mutually beneficial for both operators (entrepreneurs) and investors. For entrepreneurs, it allows more control, equity upside, and incentives compared to private equity. For investors, it allows them to back a capable, ambitious individual focused on making the single investment work. This also meets succession planning needs for business owners.

10:04

🔎 Key factors in winning and not losing during an early-stage search

This paragraph discusses tips for success early in a search fund's lifespan. It stresses the importance of leveraging the search fund community for advice and learning from others' mistakes. It also emphasizes avoiding the sunk cost fallacy of pursuing suboptimal deals too long simply because time has already been invested in them.

15:05

📈 Current state and future outlook of the search fund marketplace

This paragraph analyzes the current maturity level of search funds geographically. It notes the concept originated at Stanford in the 80s and has seen much faster adoption in the US vs UK/Europe. However, it identifies an equity funding gap in the UK representing an investment opportunity. It also predicts increasing activity as baby boomer business owners near retirement age.

20:05

💡 Top 3 pieces of advice for pursuing search funds successfully

This paragraph shares the top recommendations for search fund entrepreneurs. First, spread awareness, as many don't know the option exists. Next, be clear on strategy and sector focus based on individual strengths. Finally, research thoroughly via published reports and the community before moving forward.

25:06

🤝 Why the search fund community tends to be mutually supportive

This concluding paragraph notes that search funds often create collaborative rather than competitive relationships. It highlights some upcoming conferences and an annual entrepreneurial acquisition award event focused on celebrating win-win search fund deals.

Keywords

💡Search fund

A search fund is a pool of capital used by an entrepreneur to identify, analyze, and acquire an existing business. This concept was created at Stanford University and provides a pathway for entrepreneurs to buy rather than build a company. The video discusses two types of search funds: traditional search funds where capital is raised from investors to finance the search process, and self-funded searchers who use their own savings.

💡Acquisition

Acquisition refers to the act of one company purchasing another company. Entrepreneurship through acquisition, as discussed in the video, is the strategy of entrepreneurs buying existing small businesses to run and grow, rather than building a new startup from scratch. This provides a faster way to business ownership.

💡Due diligence

Due diligence is the process of thoroughly investigating and evaluating a potential investment or acquisition opportunity. In the context of search funds, it refers to researching and assessing potential companies to purchase.

💡EBITDA

EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortization. It is a measure of a company's operating performance and cash flow generation. The EBITDA multiple is used to value companies, so it's an important metric when analyzing acquisition targets for a search fund.

💡Succession solution

A succession solution refers to finding a new owner and operator for an existing business whose current owner/founder wants to retire or transition out of managing day-to-day operations. Search funds provide a succession solution for small business owners.

💡Management buy-in (MBI)

A management buy-in is the acquisition of a company by external managers who then run the purchased company. This is the essence of what entrepreneurs do through search funds - identify a company, raise capital to buy it, then manage and grow the acquired business.

💡Capital structure

Capital structure refers to the different sources of financing used to fund the acquisition in a search fund deal, such as investor equity, bank debt, and seller financing. Appropriate capital structuring is key to getting search fund deals done.

💡Equity incentives

Equity incentives means giving the search fund entrepreneur/manager ownership stakes and profit participation in the acquired company, to incentivize and reward strong performance in growing the business.

💡IRR

IRR or Internal Rate of Return measures the annual return earned on an investment. Search fund investor returns are stated in terms of target IRRs over the investment holding period, often in the 20-35% range.

💡Baby boomer business owners

Many search fund acquisition targets are small private companies owned by baby boomers nearing retirement age without succession plans in place. This rapidly growing demographic represents a significant opportunity for search fund entrepreneurs.

Highlights

A search fund is an individual or group raising capital to fund the search for a company to acquire and operate.

The search capital gets a 50% uplift when a deal is identified, as compensation for the speculative risk early on.

The search founder usually gets 8-10% equity upfront, plus additional equity that vests over time based on performance.

Speaking with the search fund community and learning from others' mistakes is key to avoiding losing early on.

In a search fund, the operator is the priority, with more control and upside through equity incentives.

For investors, search funds allow access to highly capable entrepreneurs completely focused on one company.

The US search fund market is 10-15 years ahead of the UK in maturity and investor understanding.

There is a gap currently in UK search fund equity financing that represents an opportunity.

Many profitable small business owners are approaching retirement age, presenting opportunities.

The key is knowing what strategy you want to pursue - stable cash flow or high growth potential.

Focus your search in an industry where you can demonstrate you can make a positive impact.

Those searching in a particular industry tend to complete deals more quickly.

These deals aim to create win-win situations with good outcomes for buyers and sellers.

The global search fund community is expanding quickly.

There are major annual search fund conferences like the one hosted in Barcelona.

Transcripts

[Music]

my name is Ryan Miller and for the past

15 years I've helped hundreds of people

to raise millions of dollars for their

funds and for their startups if you're

serious about raising money launching

your business or taking your life to the

next level this show will give you the

answers so that you too can enjoy your

pursuit of making billions let's get

into it does it not feel like Venture

capitalists are hiding from us easier

ways to start a business join me on this

episode of making billions as I walk

through a secret strategy called

entrepreneurship through acquisition

giving you the tools you need in your

pursuit of making billions here we go

hey welcome to another episode of making

billions I'm your host Ryan Miller and

today I have my dear friend Carl

Lundberg Carl is a CEO at Gerald Edelman

LLP with his expertise in Acquisitions

and search funds due diligence debt

funding for UK Acquisitions and

management buyin he's a game changer

who's revolutionizing the world of m&a

in its industry so what this means is

that Carl understands how to buy

companies for entrepreneurs is about to

teach you how to do the same so Carl

welcome to the show man hi Ryan thanks

so much for having me on I've uh I've

been a longterm follower of the podcast

and um really love what you're doing and

the community and your story as well is

really inspiring to me so I'm been

really looking forward to having this

conversation with you likewise brother

this is so good to have you calling all

the way from the UK it is truly an honor

to have someone with your caliber and

expertise in search funds and how to buy

companies for entrepreneurs we're going

to get into all of that stuff but before

we do let's let's go let's hit them

right between the eyes for the beginners

what is a search fund and then we'll get

into how to win and not lose when you're

starting out on on this path so what is

a search fund of course yeah so a search

fund I mean really when we talk about

search funds often what we we mean is a

kind of categorized into two different

buckets one is the traditional search

fund which is something that was devised

in Stanford University back in the 80s I

believe um and then also grouped in that

now is really any other entrepreneurship

through acquisition route so broadly can

be split between traditional search

funds and self-funded Searchers so both

entrepreneurs um looking to acquire

businesses a traditional search fund

will be an individual or or or a group

of individuals normally one or two who

raise a search fund so a pot of money to

fund the search period while they're

looking for a company to acquire and a

self-funded Searcher will be someone who

still goes through that search phase but

funds that bit themselves so effectively

with the means to live off their own

savings or other income while they're

searching for that business both both of

those when they find a deal will then

generally talk to investors to help them

fund that that transaction and acquire

the business to go in and run it I love

it perfect so when someone's starting

out in the search fund whether you're an

entrepreneur looking to work with the

fund that will find you a company or you

are a search fund either way there's

some rules whether they're spoken or

unspoken and often they result in two

things how to win and how not to lose so

maybe we could warm up people listening

around the world we're in 100 countries

around the world to help us understand

in the world of search funds how do you

win in the early days I think the first

decision to make of course is whether

you need to go down the traditional

route or whether you're going to do it

self-funded and normally it's quite an

easy decision particularly if you're

going down the traditional route because

it means well usually it's because

actually I don't have the means to to to

not work for up to two years and or you

may have the means but you may not have

the risk appetite to do that so there's

a decision to be made and so you make

that decision if you're going to go

traditional then you need to start

looking to raise some search Capital if

you're going self-funded you can kind of

get straight into the search how to get

things moving in the early days really

are to establish really what it is

you're looking for now there's a few

things that um characteristics of of

Target companies that are fairly common

across search funds and ETA type deals

so you need to know that and the best

way to do that is to do a lot of reading

but also to reach out and get in touch

with the community um here in the UK

we've got a small but growing community

of people who who are in this space and

the Ecco system is very supportive so

really you need to talk to as many

people as you can and then really deal

flow is is super important because you

do have to kiss quite a few frogs

unfortunately before you find the right

uh deal perfect and with a traditional

search fund how do you break that out so

an entrepreneur comes to you let's let's

just use an example so we'll say someone

who is a Superior Insurance salesperson

and they're like I'm really good I've

got a good 15 18 years left in my career

of at least what I would prefer to have

I don't know if I want to do this for

someone else but I'm really good at my

job I would love to own my own insurance

company I know how to sell it I don't

know how to build a company and then

they go to to you at your firm and you

say perhaps we can help you with that we

can help you find that so when you work

together with an entrepreneur how do you

break out the equity right because

obviously there's owners there's equity

and we do it for Capital so it's not

search charity right it's search fund

and so there's there's some Equity to be

had and we're on a show called making

billions and so there's ways that people

go about to do this in the private

market so maybe you can walk me through

a little bit of some of the just the

equity stack not the full Capital stack

just the equity stack of who gets pref

if there's any pref shares who gets

common how do you make that allotment to

those guys really really let's unpack

this and and give the entrepreneurs a

sense of what to expect yeah and that

that's that's a really good um question

I think very worthwhile scenario to

Think Through actually because you know

these things come up this is that's a

very realistic situation let's assume

that this individual is you know

probably got a mortgage and children and

you know certain costs that mean

actually they would rather go to

traditional route because it will give

them some level of security and an

income over that period so they would go

and talk to a group of investors and

there there are um there's a small group

really around the world of investors so

it's quite easy to know where to go to

there's a few in the UK and there's a

couple of people with funds that invest

in traditional search and then in Spain

and in the US there's also a pretty good

uh network of potential investors out

there as well so they would figure out

how much money they're going to need to

raise and that normally is going to be

based on how much do they need to earn

so they'll put a salary in their budget

for a couple years normally um there's

going to be some software costs there's

going to be a little bit of travel and

there's going to be DD costs so due

diligence and other things but you know

broadly you're looking at probably

between 300 and 600k as a raise for the

search period that will be issued to the

investors as capital and the terms of

that are such that when a deal is

identified a transaction the search

Capital will roll into the transaction

at a 1.5 multiple so effectively you get

a 50% uplift for investing early in the

search Capital because obviously there's

some speculative risk there that

obviously they might not find a

transaction and the money might run out

and they might go back to having a job

and so um let's say then 18 months down

the line they find a transaction and

they come back the search Capital also

gets you optionality so it gets you a

preemption to invest in the transaction

and say there's a transaction it's a 1

million ebit Dar you know insurance

broker that the indiv idual fines to buy

they're going to pay say4 million pound

for it or dollars for the for the you

know sake of an example and let's say

they're going to put some debt in right

so so there's an equity Gap they're

going to put debt in of 2 million and

there's an equity gap of say 2 million

the money that they raise will be raised

normally through the issue of preference

shares so an equity investor then puts

in2 million pound and for that they

receive preference shares worth2 million

and they will have a preferred dividend

attached to them usually between 8 and

12% and they will Al get the investor

will also get the line share of the the

common Equity the ordinary shares as we

call it in the UK the the Searcher the

entrepreneur in in this example the the

insurance operator who's found the deal

will usually get between eight and 10%

of the ordinary capital and this is by

the way assuming that they haven't

invested any cash they haven't

co-invested um they usually get 8 to 10%

on day one they then get a further 8 to

10% that vests over a certain amount of

time which is you know as long as they

stay in a management position position

in the business post and then they'd get

another 8 to 8 to 10% that would usually

vest on a on a straight line basis in a

range of irr outcomes and and and

normally the irr targets are between it

starts vesting at 20% and you'd vest all

of it by the time you get to 35% IR

which obviously is a pretty pretty

decent irr for the um for the investors

so you're only being diluted down out of

the ordinaries to the tune of about 25

to 30% as a as a an equity investor in

this scenario if you've got 35% IR

already um so that's kind of the the the

Bare Bones of how the structure would

work yeah I love that now you mentioned

earlier so that's how you win right so

you got to get your Equity incentives in

place you got to make sure investors and

Searcher or entrepreneur also have the

right incentives in place and that's

typically that's one thing we don't we

always think Equity is a way to make

money and while that's true it's also a

way to align incentives between

operators and owners and so when we have

that equity share and and allotments and

I mean I know in the news right now Elon

Musk is is pretty pissed he didn't get

his $50 billion Equity bonus or

something like that and he's upset at

the state of Delaware there's all kinds

of stuff that happen when to say through

Equity we can give you incentives the

shareholders will provide the operator

those incentives and so uh not that that

happens here but you can see that this

is a very emotionally and powerful thing

that moves Behavior a lot is equity

incentives now that's how we win but

also in the early days whether you're a

Searcher an investor or anything in

between there's ways that you can kind

of get uh a little lost or or

potentially lose or or to get knocked

down what are some ways I know you

mentioned speaking to the community is a

good thing to do on this show we believe

in reputation and relationships are some

of the greatest assets and so the reason

why I bring that up reputation Community

relationships all of those things start

to tie together can you unpack that a

little bit more on speaking with the

community and just how that ties into

not losing in the early days yeah um

it's incredibly important in um this

this space which is still a you

relatively small sub sector of kind of

m&a uh and and thankfully there is a

growing Community as I mentioned and and

they are they do tend to be very

supportive and and collaborative and

there's not a huge amount of you know

competitive tension and between searches

talking to the community will get you so

far you you you and particularly talking

to those who have done deals and

actually those who have failed to do

deals you'll learn a lot but it also

comes down to whether or not you take

the advice whether or not you do learn

from other people's mistakes and there

is this kind of sunk cost fallacy that

people often tend to be aware of but but

find it very difficult to adhere to

themselves if you're going down the

wrong path if you've identified a

company that you think is the right one

and as you find out more about it you're

starting to to to dilute that thought

and you're thinking actually I'm not I'm

not so convinced but I'll spend so much

time on it that I'm going to keep going

that's how you lose the reality here is

that it's far better overall to not do a

deal than to do the wrong deal and also

there are going to be other

opportunities so there is an opportunity

cost to pursuing the wrong one even if

you come out and you get the chance to

do another one and and and you do end up

doing a deal the opportunity cost is is

is not insignificant so really what you

want to do is one the group of investors

that you've gone to if you can get some

people with m&a experience in there then

that's brilliant because particularly

people who see a lot of deals they're

going to have more of a benchmark to

look at and say this isn't good or I've

looked at this industry these are the

issues that you need to be completely

clear on as red flags day one and you

can get an easy no a quick no so having

having a support not just of the wild

community but actually in your investor

base with some experience who can help

you to quickly say no stop you pursuing

incorrect businesses and and and

ultimately stop you from buying the

wrong company and and really they're the

key ways to avoid losing in this

situation that's right yeah a good

friend won't let you drive it over the

cliff so to speak so it sounds like and

keep me honest here Carl it sounds like

this is very similar to private equity

in the sense that you're buying

businesses but not exactly it's also

this hybrid between V uh VC and PE

Venture Capital private Equity now just

listening to you it sounds like that

private Equity starts with a corporation

that they want to buy and then they will

drop in operators where search funds

start with the operator and figure out

the company that they're going to wrap

around that would you say that's a fair

very overly simplified analysis

absolutely that's um that's really it

and and and the benefit to this this

benefits to both sides that's a win-win

because the benefit to the the operator

is that and and I had a conversation

with someone only this morning about

exactly this point which is you know

very impressive individual great

academic background great business

background and if this individual had

gone to a recruitment consultant and

said can you find me a PE business

that's looking to do buy out a company

and they want to put a new operator in

he's not going to be incentivized enough

he he's he's too good an individual and

and I don't mean that as a slight to

anyone that would do that but he's too

entrepreneurial too driven too ambitious

to go and sit in there with a private

equity business maybe with a little bit

of an equity incentive and a salary

that's unremarkable whereas what you can

do in the search situation is put

something together himself have a group

of investors that are backing you and

supporting you and providing guidance

but actually operationally hands off

don't want to meddle unless they're

asked to give some involvement and they

will which means that one you've got

more control two you've got more of the

equity and therefore more of the upside

and on the investor side what it means

is if you invest in a PE fund and that

PE fund has got a pot of 200 million and

they need to deploy that they will do

that and they'll buy the best companies

they can but ultimately they need to buy

quite a lot of companies because they

got to deploy the money right and so

they're not all going to be the best and

they're not all going to get the best

attention and they're not all going to

get the best management team what you

have in this situation is one there's a

far lower barrier to entry because the

the checks that you need to write as an

investor to get into it aren't a million

plus they're far lower often and two

you've got someone who one is a very

highly capable individual with usually a

very good academic background and good

business experience and this is their

everything they're putting their whole

time and all of their energy into making

sure that this works because this is

their career this is one single

investment for you but for them it's

everything and what could be better when

you're an investor passively just

watching someone really go for it and

and and so the reality here is that for

investors but also for operators it just

makes sense it also provides a brilliant

succession solution for business owners

um knowing that someone's going to come

in and nurture and develop and run the

business that you've built over many

years usually um and someone is there

that cares and is going to give it that

attention I love that and that what

you're talking about and and folks what

Carl and I are talking about is

essentially the Crux of the show and

also private markets is investors need

operators and operators need investors

and so where they all come together in a

very it's a very beautiful way is in

search funds and so it never is more

pure than in a search fund where

investors and operators come together

funders and Founders they come together

and really create something valuable for

everybody so win-win is certainly the

name of the game here now I'd love to

transition just into the market the

state of the market of search funds and

everything that we've talked about let's

let's really punch this up where do you

see the search fund market now where and

where do you see it going it varies um

depending on geographical location um in

the US the the Market's very well ahead

of of other jurisdictions in terms of

maturity this concept as I mentioned at

the beginning of the show came about

from Stanford University back in the 80s

and it's it's gradually grown in the US

and and and certain measures have been

put in place to make it easier in the US

for this for this to happen um obviously

the US is a very different place to to

Regions within Europe particularly the

UK in terms of scale size population um

and even state borders and and and

different laws and other other matters

whereas the UK is probably far more

simple place from many perspectives um

but the US is probably 10 15 years ahead

of the UK in terms of how the

snowballing of of the the ecosystem

develops and and and the appetite of

people develops and also the

understanding of investors and lenders

to fund these things without thinking oh

I don't know that's a it's an MBI what

does this individual know about running

a business I'm not investing in that

which which you know there's still a

little bit of that going on in the UK

now in the US it's it's very well

established and it's it's very normal

the business schools have a massive

impact as well so out out in in the US

Stanford Harvard run ETA courses um and

they teach search funds and

Entrepreneurship acquisition in the NBA

programs I I I often make a joke that

you know you qualify from your NBA at

Harvard and you walk out the front door

and there's just a group of people with

bags of money you know trying to fund

your search um but there's so many that

come out of Harvard and they're all you

know the calber of people that come out

is obviously very high as well um in the

US there's the SBA loan scheme which

helps people to fund you know purchases

of of of businesses and we don't have

something like that in the UK but in

Europe Spain in particular and other

parts of Europe it's really growing um

the the Market's pretty mature in Spain

now um the UK is continuing to grow and

really there's there's a lot of

opportunity still though I think one of

the key things is is the profile of the

business owners and actually it is that

that baby boomer generation who founded

businesses who are now approaching

retirement age and there's so many of

them and you know fragmentation of

business as well m&a hasn't really been

a hugely common thing for smmes in the

UK perhaps like it has been in in the US

for a long time so there's a lot of very

small businesses owned by people who

have done very well for themselves you

know bought bought a house and paid off

their mortgage in the '90s or the 0s and

bought the holiday home in the south of

France or in Spain in in the 0s and you

know and and and have enough and are

still earning you know half a million

pounds a year for example and don't

really need to sweat the asset right so

there's some lwh hanging fruit in in a

lot of these businesses as well where

for example you know we can improve the

business we can improve the marketing

whatever else um so it's growing um I

think in terms of investing knowledge is

spreading in the UK as I say Spain is

far more mature Portugal's got a lot of

deals going on as well but there is a

bit of a gap probably in the UK at the

moment where the lenders have kind of

gotten board the second tier lenders um

High Street Banks tend not to be

particularly interested or or helpful

dare I say um in the UK un fortunately

but um but there is a bit of a gap in

the equity funding in the UK and a lot

of cap tables I see have got us

investors and Spanish investors um

necessarily in order to fund enough to

get the uh the deals through I love that

yeah and that Equity Gap in the UK to me

represents an opportunity so it just

says hey if you've got equity and you

want to fill that Gap there's some

profit to be had so anywhere that you as

an investor or even an entrepreneur that

you can drive the maturity of any

industry up uh typically that act can

result in profit obviously it's not that

linear but that is certainly represents

a very interesting opportunity of doing

this in Europe but anywhere around the

world to be honest I love it so as we

round Third Base I'm wondering if there

were two or three things that you can

let our fans around the world know that

you find the most valuable in this

sector what would you say I think number

one is getting the point to people and

many many know this but really it's

mostly those who have come out of a

business school mid-career professionals

who have perhaps gone back to school to

do an NBA um or who happen to know

someone who has or or or happens to be

somehow involved in Surge I mean I I I

you know my colleagues here will tell

you it's all I talk about and everyone I

talk to I I bore them to death talking

about surge funds um but if you don't

Happ them to bump into me uh or if you

haven't just come out of business school

lots of people don't know about this and

they don't realize that actually you can

go and buy a business you know not

everyone can indeed not everyone should

um and not everyone even should try to

but there's a lot of people out there

who are very capable um and who can go

and buy a business and there's also a

lot of businesses out there that are

suitable for someone to come along and

buy so I think there's a huge

opportunity for young people and I say

young people I mean people with a period

of their career left to go in identify

businesses that need some improvement

need some succession solution and put

together a situation that presents to

investors something that is a incredible

opportunity when you're looking at

things like 35% irr but also gives them

the opportunity to one run their own

business and two make substantial IDE

themselves from their carried interest

effectively that that comes with the

ordinary SL common stock that they'll

they'll hold so I've seen a lot of

people make a reasonably substantial

amount of money from buying a company

perhaps making some boltons but growing

it you know putting in place that

marketing fixing the website and and and

taking those steps that probably the

founder didn't need to maybe a bit of

geographical expansion as well and so

there is just a fantastic opportunity so

I think the first is people need to

understand that they can do it and that

the the opportunity is there really then

the next step is you need to be pretty

clear about what it is you're trying to

achieve I've got some clients in the

space who are very much value investors

you know we we I was joking with one of

them not so long ago we were saying you

know we we're bringing our colleagues

you appetite to pay for things up a

little bit you know we're pushing him up

to 3x now and I think you know up from

Two and a half times evitar he's now

willing to pay three-ish you know and um

so there's some who who who will hold

out and find a deal and think this is a

cracken deal they do some proprietary

Outreach find off Market businesses and

and and strike deals that are just

incredible day one you've made a lot of

money even if it's unrealized um but but

there are others who just want a stable

cash generative business that delever

the debt over time and you know and and

maybe has a little bit of growth maybe

there's some bolt-ons and you can take

some multiple Arbitrage from from

increasing you know your um your ebit

Dar from bolting on new businesses at a

lower multiple than you might sell at

later but just to know what's your

strategy what are you trying to achieve

and then think about sector Focus as as

well you do need to set yourself apart

in some way and there are a lot a lot of

Founders who who who have nurtured the

business over the years and really built

it and and it's their baby really and

they don't want to pass it to someone

who you know has no idea about the

industry okay so so I what I would say

is if you've got some business

experience try to place your strengths

and try to look for something that is in

an industry that you at least have have

some some idea about either you've

consulted in or you've worked in um or

it's something that you can demonstrably

say look I can I can make a difference

here and I'm going to look after your

staff and your business and everything

else so so really that's um that's

number two know know what it is you're

looking for Identify some of these key

markers of you know stable cash flow

ebit data cach ratio which we want to be

as correlated as possible inless you're

looking for an asset heavy business but

usually people do not in these

situations the ebit down margin should

be between 10 and 30% ideally I mean if

it's higher great but you need to then

understand why and then think about all

those other things about marketing and

everything else and point three really

is overall think about how you're going

to achieve it and how quickly make sure

you do your research make sure you speak

to the community and understand from

other people um there's a great research

paper that was released in January of

2023 so over a year ago now but it was

by um an alfit called the search

Investment Group I think they're based

in the US and it was a self-funded

search study uh so it talked about

self-funded Searchers and actually it it

had some interesting points in there

saying that actually those who were

looking in a particular industry and F

using the surge rather than saying you

know what we're going to buy something

in any industry as long as it ticks

certain markers those folks in our

particular industry actually tended to

do a deal more quickly than those who

are being more opportunistic and looking

at everything so there's certain things

like that that actually you can pick up

on learn about and and steer your search

towards to to make it more likely that

you're going to succeed here perfect

well thank you for that so as we wrap

things up is there anything you would

like our fans around the world to know I

think it's worth saying that you know

actually this community is expanding um

obviously I'm I'm I'm very well plugged

into the UK Community here um I'm as you

may tell I'm incredibly passionate about

search and Entrepreneurship through

acquisition I I I probably would in in a

in a in another life have been have been

uh doing it myself but I really enjoy

working with clients and helping them to

do it so I do that in the UK but also my

firm Geral edman um is a sponsor for the

um International search fund Center

which is connected to Esa business

school in Barcelona there is a

conference that happens uh by anually in

Barcelona and I think the year there's

one in Stanford I think the Barcelona

one's actually the largest in the world

so for anyone interested in the space it

it is an International Conference so

people from all around the world who are

interested in search will attend that um

and it's worth looking into that we also

in London for anyone who's in London or

f a trip to London um I founded last

year the entrepreneurship through

acquisition awards that we run here and

so we'll be running that again in in

November this year um I think it's

around the sixth or 7th of November 2024

and and hopefully that will continue to

be um you know an annual event but what

we do it's a it's a great excuse to one

celebrate people who have unlocked value

for people created succession Solutions

and and basically done great ETA deals

but it's more a collaborative assessment

in that you know these these deals the

Great Deals here are create win-win it's

less one-sided than a PE deal might be

if you're if you're a PE firm and you

buy a company really cheap and maybe

slightly underpay for it that's probably

a really good deal for you in in the

search Community normally you've got you

know people staying in on a consultancy

basis or maybe even they're rolling some

Equity over it's far more collaborative

so what you want to do in these deals is

win-win create the SE session solution

that the seller wants find a nice deal

that makes both sides win and so and

that's how we assess these Awards so we

hand out awards that have created

opportunities like that um and uh and so

for anyone that would like to attend

that please you know don't hesitate to

get in touch we have got a website that

is is part of our website as a firm so

it's awards. Jerald edelman.com um where

you'll be able to view the details of

the awards and and obviously all updated

for each annual event as well so really

you know it's just anyone that wants to

to have a chat about ETA generally I'm

always uh willing and and and very happy

to do that and um you know for any

advice or or deal flow or you know

Financial due diligence assistance

valuations whatever else it might be you

know where to find us awesome well I

appreciate that so just to recap

everything Carl and I spoke about don't

build a company buy one with a search

fund number two is know what you're

looking for and finally number three is

look for those research reports you do

these things and you too will be well on

your way in your pursuit of making

[Music]

billions wow what a show I hope you

enjoyed this episode as much as I did

now if you haven't done so already be

sure to leave a comment and review on

new ideas and guests you want me to

bring on for future episodes plus why

don't you head over to YouTube and see

extra takes while you get to know our

guests even better and make sure to come

back for our next episode where we dive

even deeper into the people the process

and the perspectives of both investors

and Founders until then my friends stay

hungry focus on your goals and keep

grinding towards your dream of making

billions