Starting a search fund can be an exhilarating and rewarding venture but it also requires a specific set of characteristics and skills. A search fund is a fairly unique model, allowing aspiring entrepreneurs to raise capital to acquire, manage, and grow a privately-held company. Here are some of the things we think matter for entrepreneurs considering the search fund journey:
1. Strong Financial Skills
Understanding financial statements such as a P&L, balance sheet and cash flow projections are crucial for evaluating potential acquisition targets and making informed investment decisions. Entrepreneurs must feel comfortable navigating complex financial models and are often required to engage with investors and communicate effectively about financial outcomes. Consequently, those with a background in finance or a strong grasp of financial principles will have a considerable advantage. This is one reason that search funds are so popular amongst the MBA community, given the finance focused modules that nearly all MBA candidates will undertake.
2. Entrepreneurial Spirit
At the core of every successful search fund entrepreneur is an undeniable entrepreneurial spirit. This character encompasses creativity, risk-taking abilities, and a relentless drive to succeed. An entrepreneurial mindset allows individuals to see opportunities where others see obstacles. It also gives them the resilience and adaptability needed to navigate the uncertainties and challenges that often accompany acquiring and managing a business. This spirit ultimately fuels the determination to tirelessly pursue ownership, growth, and improvement of their acquired company.
3. Experience in Management and Leadership
Experience in management and leadership is another critical trait for entrepreneurs aiming to run a search fund. Having previously led teams or managed projects provides a solid foundation for effectively overseeing an acquired business. This experience is vital in establishing a vision, motivating employees, and making strategic decisions that impact the company’s future. Additionally, search fund entrepreneurs should be adept at building rapport with employees, suppliers, and customers, which requires strong interpersonal skills and emotional intelligence. Taking over a business and ensuring continuity requires a strong ability to build and manage relationships.
If you’d like to listen to a podcast on the subject, we recommend this one from The Game is The Game podcast, interviewing Jason Jackson who himself runs a search fund as well as a lending business in the search fund space:
4. Networking Skills
Building a successful search fund largely hinges on the ability to network effectively. Entrepreneurs must cultivate relationships with investors, mentors, industry professionals, and potential acquisition targets. A robust network not only provides access to capital from search fund investors but also facilitates introductions to valuable resources and knowledge regarding market trends. Networking helps entrepreneurs gain insights from others who have successfully navigated the search fund landscape, learn best practices, and gather advice during their journey. Thus, exceptional networking skills are a vital ingredient for success in this arena.
5. Patience and Perseverance
The path of a search fund entrepreneur often requires a significant amount of patience and perseverance. The process of raising capital and identifying suitable acquisition targets can be lengthy and fraught with challenges. Entrepreneurs may face numerous rejections from potential investors or struggle to find the right company to acquire. Those who remain committed and display persistence in overcoming these hurdles tend to be more successful. Developing a mindset that tolerates uncertainty and embraces learning from setbacks is essential for significantly enhancing the likelihood of achieving long-term goals.
6. Sector Knowledge and Passion
Having domain expertise in a specific industry can significantly impact an entrepreneur’s success in the search fund model. Familiarity with sector dynamics, market trends, and competitive landscapes enables entrepreneurs to identify viable acquisition targets more efficiently and to develop effective growth strategies post-acquisition. Moreover, passion for a particular industry can fuel motivation and commitment, which are crucial during the rigorous search process. This innate interest drives entrepreneurs to immerse themselves in industry knowledge and remain informed about ongoing changes, enhancing their chances of success.
7. Strategic Vision
A search fund entrepreneur should also possess a strategic vision for both the acquisition process and the future growth of the company. This means not only identifying a business worth acquiring but also understanding how to elevate that business. The ability to articulate a clear direction for the company is essential, as it ensures that all employees understand the objectives and are aligned in their efforts. Strong strategic vision also helps entrepreneurs evaluate potential acquisition candidates thoroughly, assessing their compatibility with long-term goals and foresight for growth opportunities.
8. Adaptability and Flexibility
Finally, adaptability and flexibility are essential characteristics for entrepreneurs seeking success with a search fund. The business landscape is continually evolving, and entrepreneurs must be willing to pivot and modify their strategies in response to dynamic market conditions and emerging insights. Flexible entrepreneurs can better manage changing circumstances, embrace new ideas, and explore alternative paths to realising their objectives. Adapting to unforeseen challenges—be it during the search phase or post-acquisition—will enable search fund entrepreneurs to maintain momentum in pursuing their goals.
Recommended Watching
This video interviewing Coley Andrews of Pacific Lake gives some great insights into what makes a great search fund entrepreneur:
Sources, citations and recommended reading:
- Another resource from Stanford GSB, but if there is one organisation that knows search funds – it’s them! This blog post by Theresa Johnston provides lots of thinking for potential searchers: https://www.gsb.stanford.edu/insights/what-it-takes-be-search-fund-entrepreneur
- This interview with search fund entrepreneur touches on the motivations for starting a search fund with some good insights: https://www.searchfunder.com/post/starting-a-search-fund-motivations-fundraising-and-investor-captable
- Check out our list of our favourite search fund podcasts – lots of the podcasts listed regularly interview search fund entrepreneurs who go into lots of detail on why they started their businesses: The best search fund podcasts
