Finding investors for a search fund can be a challenging yet rewarding journey for aspiring entrepreneurs. A search fund is a unique investment vehicle through which the entrepreneur raises capital to find, acquire, and operate a small business. The capital raised during this journey is primarily termed as “search capital,” designed to fund the entrepreneurial search phase. Given the competitive landscape, understanding how to target and approach potential investors is essential for success. This blog post outlines various strategies to help search fund entrepreneurs effectively find and attract investors.
Understanding Your Value Proposition
Before reaching out to potential investors, it’s crucial to have a clear understanding of your value proposition. What differentiates your search fund from others? Outline your strategy for identifying and acquiring a business, your specific investment thesis, and the industries you plan to focus on. This clarity not only builds confidence but also allows you to communicate your vision effectively to potential backers. If you have a industry focus, make this clear – operational or management experience within a sector that you are choosing to launch your search fund in can be highly appealing to investors.
Build a Strong Network
Leveraging your network is one of the most effective strategies for finding investors. Attend industry conferences, networking events, and seminars relevant to private equity and venture capital. Engage with alumni networks and professional associations, which can provide valuable connections to potential investors who understand the search fund model. Personal introductions often carry more weight than cold outreach, so don’t hesitate to ask your contacts for referrals.
Craft a Compelling PPM
A compelling deck, often in the form of a ‘PPM’ (private placement memorandum) is a key starting point in making a strong first impression on potential investors. Your PPM should include a comprehensive overview of your investment thesis, experience, any relevant market research, and financial information, as well as any industry or geographic focuses to the search fund. Highlight any previous entrepreneurial experiences or operational/management skills that demonstrate your capability to manage the acquired business.
Target the Right Investors
Identifying the right investors is critical. Look for individuals or firms that have a history of investing in search funds or sectors related to your focus. Family offices, high net worth individuals, and investment firms that have backed search funds in the past may be more receptive to hearing your proposal. Research their investment criteria, recent investments, and areas of interest to tailor your outreach accordingly. Entrepreneurs that have themselves run a search fund also make great investors, as do entrepreneurs that have successfully exited their business and have some M&A experience.
Engage with Search Fund Communities
Join search fund communities and forums, both online and offline. Organisations like the searchfunder.com or Search Fund Alliance can provide not only valuable resources but also access to potential investors who are familiar with and actively interested in the search fund model. Engaging in these communities and search fund news sites can facilitate introductions and lead to potential investment opportunities. Here at Search Fund Focus, we’re building various ways in which we plan to make the process of finding investors easier for search fund entrepreneurs across Europe as well. Watch this space and sign up to our newsletter for now.
Build Relationships
Investors are more likely to invest if they feel comfortable with you and understand your vision. Building authentic relationships is essential. Schedule one-on-one meetings or coffee chats with potential backers to establish rapport. Be transparent about your intentions and seek their feedback on your investment thesis. This not only creates trust but can provide you with insights that improve your approach.
Stay Persistent and Open to Feedback
Raising capital can be a lengthy and sometimes frustrating process. It’s common to face rejection, but persistence is key. Stay committed to your goal while remaining open to feedback from conversations with potential investors. Adapt your pitch and strategies based on the insights you gather along the way. Each interaction can serve as a learning opportunity that refines your approach. Often a certain tipping point or critical mass is needed from one or two anchor investors before other investors tag along – this can take time, so persistence is key.
Recommended Watching
Although it was published in 2011, we think this video from Stanford is a timeless classic that’s worth watching for anyone wanting to understand how search fund investors think:
Sources, citations and recommended reading:
- IESE Business School has produced a helpful document called ‘A Note to Investors Who Are New to Search Funds’ which gives good insights into how investors might look at the search fund model: https://www.iese.edu/media/research/pdfs/OP-0630-E
- SMEVentures has produced a list of search fund accelerators, so whilst these are only one particular type of investor, the list may still be useful for searchers: https://www.smeventures.com/insights/a-comprehensive-guide-of-search-fund-accelerators
