Any PE people considered leaving to pursue search fund/entrepreneurship paths?
I've noticed a growing trend of ~mid-level professionals leaving their private equity (or other "high finance" jobs) to pursue search fund / "entrepreneurship through acquisition" opportunities.
The thesis is, broadly, that there are trillions of dollars of wealth tied up in small businesses owned by baby boomers in the U.S. As these boomers seek retirement over the next decade plus, there is a massive supply of attractive, "main street" small businesses (think everything from car washes to roofers to landscapers) coming to market. Many are available at 3-5x EBITDA with 80-90% LTV financing at reasonable rates through the U.S. government's SBA program.
This broad bucket of opportunities has several structures, but generally involves using either your personal capital or a small pool of "search capital" raised from investors to finance a 1-2 year search period during which you look for a business to buy. Over time, you can roll-up additional businesses in the same space to achieve scale and (hopefully) multiple arbitrage by selling to PE - lots of examples of this, e.g., dental clinics, vet clinics, car washes (https://www.wsj.com/articles/private-equity-wants…). Or you can simply operate a single business and grow it organically, clipping healthy cash flows along the way. Lately, people have been excited about the idea of creating small holding companies of small businesses - Chenmark is probably the best example (https://chenmark.com/). Historically, the search fund concept started at Harvard and Stanford's business schools in the early 2000s, but it has recently become more democratized as the idea has gained popularity, with many pursuing the "self-funded" search path without an MBA.
The "why" is simple: making (and staying) partner at PE firms is really hard. It's a get rich slowly scheme, not a get rich quick scheme. It's also a grind that takes a direct toll on your personal health and family relationships over time. It's easier said than done, but if you prudently recognize you're not cut out for the long term path, it's wise to get out sooner rather than later.
It's pretty easy to sketch out a path to 7 and 8-figure outcomes in line with, or well in excess, of available in the PE path (though obviously with significant risk! Though I'd argue there's significant risk to getting and staying a partner in PE to see it really pay off as well).
One other success story is Garnett Station - two guys did 2 years IB, 2 years PE, then got started buying franchises after business school. 8 years later they have a successful $1b AUM PE manager (https://www.garnettstation.com/)
Curious if others have considered this path, weighed the pros and cons, or seen other success stories/failures. Any thoughts welcome.