LMM PE or MBA better for Search Fund / Entrepreneurship?
Title details the question but curious people’s thoughts on the differences between the two approaches to the same goal? Would it be more valuable to gain experience closer to these business, thinking through growth strategies and buying / selling them OR taking a job that lands you in an MBA program and gains you access to capital a little more easily?
Obviously the MBA -> Search Fund route is probably the most common, and likely still in play with Pre-MBA LMM PE experience, but wanted to get the forums thoughts. Especially if presented the opportunity to work up in an LMM shop rather than leaving for B-school.
Final piece, is it possible to get funding for a Search Fund from an M7 school rather than just H/S (where I understand a lot of capital is flowing towards these opportunities)?
Open to and appreciative of any insights here!
Got it - Thanks this is all super helpful. Two quick follow up questions if you don’t mind:
1) What have you seen associates do to separate themselves from the applicant pool for the top b schools? Know it’s possible but just a less traveled path from LMM/MM to H/S/W or even MBA business schools">M7 really so curious what you think, in addition to good leadership and GMAT scores, helps distinguish them.
2) have you seen anyone raise a search fund directly out of work in PE? Curious to see if it would be possible to do something along the lines of IB Analyst -> LMM Associate / VP -> Run Search fund. Figure that’s where it would get tricky finding funding for the venture.
LMM PE IMO unless you can get an MBA from a school with solid funding opportunities like the poster above said. Some are definitely more suited to it.
Although, I don't really think a search fund is a good idea unless you definitely want to be an entrepreneur and nothing prepares you for it other than running your own business. Keep in mind, if you're running anything on the smaller end of things, you will be getting very tactical...and getting tactical really does suck.
Really appreciate the insight. Would you be willing to expand on your last point? Definitely understand that a smaller business would translate to a CEO who is really in the weeds, but curious what makes that such a downside?
Equally in saying that you should only do it if it’s exactly what you want to do, you just mean that the skills aren’t always transferable should things go south? Any color there would also be great.
Posting to follow.
How about trying to connect with one of the investment firms that provides capital to search funds to gauge how they assess people? My understanding is that it tends to be a lot of the same companies investing over and over, and I'd imagine they'd appreciate the opportunity to be one of your primary contacts if you were to go the search fund route.
Depends heavily what other experience you have. If you already have PE experience, incremental experience in LMM prob won't lend has much marginal utility vs. a H/S MBA. If you're in investment banking however, trying to launch a search fund without any prior investment experience is certainly a very uphill battle. So you're better off going LMM PE route, and then either search fund or top MBA then search fund.
A top MBA is (for whatever reason) very valuable in fund raising/personal branding, and network.
I will say, I don't really think it would be super impactful (for search fund purposes) to have a Stern / Booth / Johnson / Sloane etc MBA. It's probably mainly H/S, possibly W.
Search funds from H/S are on a much larger scale (burger king, taco bell roll ups, etc). Search funds exist at the other M7s but not as large (buying out a 5-15 million EV company, etc.)
IIRC most search funds from H/S are self funded these days compared to 10 years ago. The traditional model (20 percent equity upon sale) only works if its on a much larger scale (50 mill + roll up strategy) OR your LPs help you source a high growth company that you can take from 10-15 million in EV to 30-50 million. These are also the sort of LPs that usually invest in H/S search funds. Given that its easier to raise equity capital these days and SBA lending requirements are not as high as they used to be (only 10-15% down required), it makes a lot more sense to go self funded if you're buying a smaller mature, traditional business.
Theres a ton of search fund investors out there who would be more than happy to fund a 5-10 million EV acquisition, say a mature manufacturing business. They fund MBA students from top 25 MBA programs, so its not really necessary to go to an MBA business schools">M7. Though, the economics won't really make sense if you're only keeping 20 percent. There's less risk going down the traditional model as well. There's no personal guarantee if you go through a search fund investor (so if the company goes bust you're not personally liable.) A lot of internationals go through the traditional search fund model because is harder for them to qualify for an SBA loan.
This statement confuses me. I was under the assumption that the size of the target depends entirely on the strategy of the individual who created the search fund. The search funds themselves are generally just 1-2 people looking for a company to buy and run. In the cases I’m familiar with, the search funds didn’t have committed funding but used their networks to get verbal signals from potential investors. When an opportunity was identified and diligenced, the investors would then make the call on whether they wanted to back that specific investment.
Based on my understanding above, I don’t understand your comment. Are you saying that students at MBA business schools">M7 schools don’t have the same aspirations in terms of the size of the companies they are searching for? Alternatively, are you saying that only H/S can secure the backing of investors to buy larger companies ($50M + roll-up strategy).
I’m genuinely confused but it may be we have different definitions of what we consider search funds.
Tbh, rather than burning 250k on the MBA, may just be better to work a couple more years and then self fund. You'll keep more of the economics, although the business would be a bit smaller.
Got it. When you say self fund, do you mean truly self-fund the acquisition or just run an unfounded search and try to source capital on the backend?
If you do self-fund the whole thing, any idea what kind of leverage / sources of leverage you could use to maximize the dollars at work?
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