Wanted your guys' opinion on how realistic it is for someone competent to raise a search fund without an MBA. Based on my research so far, I haven't come across anyone without an MBA, although some went to no-name schools. Obviously, b-school is where the Entrepreneurship Through Acquisition (ETA) classes are taught. And b-school can be useful with networking with fellow search funders, professors (many who double as investors), and partners and vendors such as commercial bankers. Yet, I feel like there isn't any knowledge in b-school that can't be researched on the internet. I'm willingly to bet many (if not most) professors haven't been through the search fund process themselves. What's that saying? Those who can't, teach? Sorry for the low blow, but an MBA is time and capital intensive.
Some background on me: late 20's, went to a semi-target for undergrad (econ major), and a few years of experience in commercial banking. My slight competitive advantage is having a network of middle-market bankers who can provide unique deal flow (i.e. pocket listings). Who knew commercial banking could ever be more beneficial than i-banking? Plus, I wouldn't only be looking for "SaaS businesses with robust recurring revenues" necessarily; this seems to be generic search criteria right now. Also, I wouldn't mind cold-calling and getting my ass handed to me, since I'm aware it comes with the territory.
Ironically, many business owners I've worked with look down on MBAs, especially if they think you think you know everything about business being in a classroom. Must be a generational thing, where many of these guys have a chip on their shoulders for achieving success without fancy degrees. So not having an MBA might actually make me more relatable. Finding a target can be more challenging than fundraising; you need high EQ for the former. For the record, my personal opinion is that an MBA can be valuable if from an M7 program, but even then, the value has been watered down. Aside from PE/consulting, MBAs aren't highly regarded, not even by HFs and especially not by VCs. I've been told on multiple occasions that undergrad is more rigorous than MBA programs, even at top b-schools.
As a cherry on top, I'm willingly and able to cover my own day-to-day expenses if/until a viable target is found. So investors would only be funding the equity portion of an investment, not paying for my Pornhub Premium subscription. Please be frank with your opinions, especially if you have a search fund/entrepreneurial/MBA background. Some questions:
What are some desirable industries for search funds? Software is appealing for obvious reasons, but valuations are especially rich. Plus I feel that software doesn't offer a strong moat, despite sticky/recurring revenues.
What's the process to solicit and build rapport with investors?
What are some suggestions to maximize credibility?
What else should I know/be aware of?
Looking forward to the discussion.
You seem very argumentative for someone seeking advice on the internet. I've had friends that took 2-4 years to find a company they like, convince the owner to sell, and agree on a price to sell it. The last is always the hardest part, and if you are sourcing through business brokers, they will likely try to create any level of competition possible.
From reading the above, it seems like you want someone to say: you definitely don't need an MBA to do a search fund, and you should just go for it. At the end of the day, (a) you don't need an MBA and (b) if you really want to do it, then do it already. I think what you are hearing from those that are offering their advice here, is that many search funds are led by an MBA and it may make the journey a little easier. If you don't think the tuition and lost comp is worth it, team up with someone or prove us all wrong by doing it on your own.
We're just saying that search funds are tough, and doing one in your 20s with ~5 yrs of commercial banking experience and without the credential / network of a respectable MBA program might make the process a bit more challenging. You sound like you are up for the challenge though. I'm interested to hear how it goes
Hey,
When I left my PE job I started looking to buy a business without knowing about search funds. I made a plan to roll up an industry in the healthcare sector and it didnt quite work out. I kept going at it and through my (very short) track record of sourcing deals, securing funding and submitting LOIs, I was able to attract investors to form a search fund.
I received some term sheets, but decided agaisnt it as I didnt feel the terms made sense. You basically give up most of your equity for the security of having a 80k-100k salary while you search.
I remember being very discouraged at some point after several failed deals and reaching out to a contact that had successfully bought a business and he told me: "Do you know what is better than owning 40% of a business. Owning 100%, borrow as much as you can and save your equity for future funding rounds if required". It kind of stuck with me and he was right. Most small businesses (Sub 8M revenue) can be financed 100% with debt if you structure it correctly.
Better off just living poor and hustling for 1-2 years than selling most of your equity for some security imo.
And regarding the MBA, I have no idea why people think that would be a prerequisite to start a search fund. Tbh its pretty simple to make a model and investment case for a small business... the most important skill in a search fund is your ability to source and convince an owner to sell which you can do without an MBA..
EDIT: Also, for someone who has been doing this for 2years, I can tell you its a very lonely and difficult path as all your peers are racking in bonuses and promotions you are in the same spot until you close something. You also dont really have co-workers and it always feels like you on the edge of closing a deal and becoming paper rich.. at first you talk about your deals with your buddies but fast forward several dead deals you kinda just feel like a broken record and keep to yourself.