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!
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.
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.
Appreciate the comprehensive response. We were indeed defining search fund differently. What you’re describing feels a bit like a PE / Search Fund hybrid in that the individual has committed capital to invest as well as salary/expenses covered. That said, I am admitted not well versed in the search fund world so I fully admit that my perspective is limited.
Some questions now that I understand your points:
What makes these investors lower quality? Are they less experienced? Less access to resources? Do less thorough diligence on the individuals they back? Provide less guidance through the search fund process?
Sorry to pick apart your words here. I don’t see how GS/MS IBD —> MF is the highest quality background for someone embarking on a search fund model (highest quality defined as best fit for purpose). As someone who has done all his deals in the sub $250mm EV size, the BB / megafund experience does not prepare you for this world, particularly within transaction structuring. Based on what you’re describing, it sounds as though the highest quality investors are backing those with the most pedigreed backgrounds rather than the most qualified. I know this doesn’t change your point — my message is probably best directed towards the search fund backers rather than anyone else.Again, you likely have more exposure to this than I do as I’m familiar with search funds only through conversations with classmates and friends. As someone who didn’t go the BB —> MF —> HBS route, I’m usually skeptical of statements that assume bigger is better. In this particular case, I feel there is a risk that you’ve created a self-fulfilling prophecy in which “high quality investors” is defined as “those who back HBS / GSB students.”