Looking at starting a Micro PE fund
I currently work in LMM PE and am looking at launching a Micro PE fund. There seems to be a lot less noise and subsequently a lot off opportunity in the end of the market that straddles the upper-end of SMB and the very bottom of the LMM. (deal size of $1M - $10M). There are a handful of firms playing in that space and although it comes with some risk there seems to be a lot of upside.
Would love to get thoughts and feedback from those who come from the PE, Venture, or the startup world on the feasibility of the model.
It’s called a search fund. Given operational complexity of deals this size I would focus on one company not many
No - I'm thinking about a totally different model. Think SaaS companies in the $500k ARR range that are worth ~$1M. Those are acquisitions searchers could never get underwritten but could yield a 5x + MOIC in a 3-4 year timeframe.
They also go from $500k ARR to 0 all the time.
Gonna pay 3x revenue in deal fees and expenses alone
I used to work at a fund with that model. Very successful, excellent returns, but the amount of capital you're deploying is so tiny that nobody's really getting rich.
Thanks for the feedback. Would be interested in connecting with you to get your insight on the right away to approach this model. If you're open to it PM me and we can put a call on the calendar.
What was the range of deal sizes the firm did? And any specific target industries?
Can't go into details but 500k-2mm EBITDA and tech.
I think it depends on your model. Have seen lots of ex CF guys and PE guys move out and syndicate a search fund together. Seems like a nice life, they largely live off dividends, leave growth to a heavily incentivised MD and target companies with excellent working capital dynamics.
Nice life , and can be an effective business model especially for those with sector knowledge and a dual operator/investor mindset. Head of new investments at my firm left PE after 15 years to do exactly this. Invested in majority stakes of 2-3 businesses (think chains of gas stations , boiler installer companies etc) , boring and predictable companies that pay him a very nice dividend and other director benefits each year
excellent working capital dynamics being large upfront payment for long-term service delivery type biz models? can you expand more
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