Out of college, what kind of experience would be best for people trying to start a search fund?

The prior comments about sales are amusing, but they miss the path by focusing so singularly on the (correct) endpoint.

While it's an unavoidable fact that your business development skills are almost always the single biggest driver of success in the type of companies that fit the search fund acquisition model, the painful hurdle you have to clear first is the screening process of the search fund investor audience.

Two backgrounds really shine: finance and operations.

The former specifically means investment banking or buyout private equity. Everyone knows the banking skill-set. It's transferable and well-respected. Even if you don't have any closed deals by the end of your stint, you've been through reps that have created muscle memory you can draw on when analyzing potential targets. (Now for a lower middle market business with $3m EBITDA against $12m in top-line you're the equivalent of a Ferrari showing up at a go-kart race, but that's besides the point. Investors love you.) Private equity, same logic although an even more favorable read. You've actually contributed to investment decisions.

The latter is broader. Real points for a functional role in a startup that grew fast. They hope you'll apply some of that magic growth formula and really steepen the slope of the target you close on. Rotational roles in F500 with broad exposure across business functions or geographies count. General management roles in a specific function count.

The overarching point is that you want to be able to point to that something that shows you can add real value either in assessing the investment or in rolling up your sleeves and making it better once you have it.

Consulting isn't necessarily frowned on, but if you think about MBB, your entire frame of reference is usually situated in an entirely different league. The companies that can afford the seven and eight-figure engagements are operating at a scale so far removed from the seas you'll be fishing in with a search fund. People won't laugh you out of the room, but the experience isn't perceived as being so applicable the same way banking is, even though the banking clientele is also very different in scale.

If I had to take this route from scratch today (as in I was graduating college and committed to the search fund route down the road):

• I would get a middle market banking stint in a regional market. Chicago is probably the biggest I'd go. I know there are greater inefficiencies in the middle market, especially the lower I go, relative to the megacap range. I also know that the coastal cities attract the people most willing to make sacrifices in the pursuit of career success, meaning other regions present all kinds of businesses run by people with a different sense of work-life balance.
• I would intentionally take the three-year analyst route. I want as much time as possible to first hone my deal reps, then begin building a strong network of service providers, private equity firms, and business owners that know my name. If I'm at a bulge bracket, zero of those three audiences will know me. There will be too thick a layer of people senior to me on the deal team. If I'm at a Blair or Baird or similar shop, it can happen.
• If I'm heads-up, I can be really personable with every single one of these people and systematic about taking 30 seconds at the end of a call to thank them for being so kind and informative (even if they did nothing to merit it) and ask if I can take them to breakfast or lunch sometime to learn about their career. Towards the end of my second year, I can begin to push back on all the nonsense staffings and busy work and manage a portion of my work across the junior analysts so I have more free time. I can then use that time to have all these conversations.
• I can analyze every single middle market private equity firm in my geography, be methodical about reaching out to one alumni and one current employee of each, and try to get them on the phone to soak up as much intel as possible. I want to learn whether they follow the platform model or not. If they do, how active are they with tuck-ins? I can log every single platform asset I find and try to develop a sense of what their tuck-in criteria are.
• Once I find a place that does follow the platform model and (a) is high-volume with its add-on approach and (b) has a good culture (which I diligenced by talking to as many people who previously or currently work/ed there), I want to get an associate role there. Hopefully I've made a good impression on the people I've spoken to and am thus able to engineer an off-cycle process of my own for a start date either that coming summer or the following.
• During whatever gap I have between my banking analyst stint and the private equity one, I want to knock out my GRE or GMAT so that's completely out of the way and not distracting me once I get into the new seat. I'd also begin my business school application, drafting essays that are really articulate about why I've chosen this path, how Harvard or Stanford (you really want these two for the search fund route) have created a ecosystem that uniquely supports it, and what I will be able to add during my time there.
• When I first get into the private equity seat, I'm going to immediately alert what should be the dozens of the people I spent so much time cultivating relationships with to the fact I'm now on the buy-side. I'd try to reconnect with each of them, thank them for the advice they've shared in the past, shoot the shit about how life is going, and share what my firm's looking for and how I'd value their input on any way I personally can stand out as I try to execute on it. My goal is to be able to source something on my own and successfully run it through the firm's investment process.
• Even if I can't source anything, I am immersing myself balls deep in developing the six tools of the private equity player - as Layne Staley wrote so well in an old comment. I want as many reps as possible on sourcing, diligencing, negotiating or structuring, managing, exiting, and communicating the performance (i.e. fundraising) of middle market investments.
• In my second year as an associate, I would line up an unpaid summer internship for myself somewhere I can learn business development or direct sales. I want to use the two months I have between my associate role ending and b-school starting to get a riskless trial by fire. I know there are hundreds of private equity portfolio companies and early, mid, and late-stage startups who will very gladly take an ex-banking, ex-buyouts guy who wants to muck around for a few weeks. I want to learn the difference between inside sales and outside sales, sales versus sales development, sales versus business development, and what sales ops is.

If I do all of this well, I should be able to matriculate at school with:

• a couple hundred warm contacts in a regional market I know well and am comfortable in
• some kind of spreadsheet or SaaS thing filled with dozens of companies I have screened over the prior half decade: that we bought or sold for banking clients, that I found as peers or competitors of add-ons made by private equity firms I researched as a potential employer, that I sourced or diligenced during my private equity role, or run by people in my professional network
• enough minimum critical knowledge on the overall revenue function of an org gained during my pre-internship that I now have a syllabus of sorts to self-study and teach more to myself my first year while every single one of my classmates is sweating over recruiting

At school:

• I would be really methodical in meeting as many of my classmates who didn't come from finance before school, because I'm looking for one other person to team up with who's over-indexed on the operational side the way I am on the deal analysis side.
• Once I find that person, I'd then spend a month or two downloading them on the search fund model. Before the second semester is over, I hope we have a domain and site live and are negotiating terms with all the big Limited Partners in the search fund category.
• I want to be able to spend my summer buddied up with my partner just running analyses on those companies in my database. We are now gridding them against our shared competencies. If there was something that had a heavy engineering component and I didn't think as an owner I'd be able to ask senior management the right questions in a crucial moment, but my partner spent six years in an engineering and then engineering management function, I'm in a completely different position.
• Once I've zeroed in on something (and I know that may spill over and chew up a lot or all of my second year), I want to run an airtight deal process. From talking with the small circle of people in the search fund mafia, I've learned that leverage is usually the slowest part of the process, so I manage my seller accordingly and try to stay on top of their psychology through the ordeal.
• Hopefully I close quickly, because I bet on myself by pursuing the unfunded search model instead of the funded search model and thus didn't take $500k from LPs who then beat me up on the terms on the back-end. I am running a 1-and-15 structure, or maybe a hard-pref with a 15% defer-able coupon.
• I alert that whole network I worked so hard to build about the fact that I'm now a GP on my own managing an asset. That audience now includes my prior employer as well as all the other firms I diligenced when trying to decide where to be an associate. Eventually I exit the asset to one of them, hopefully at a better multiple than I entered it at, and hopefully with meaningful business performance improvement thanks to the efficiencies my partner and I were able to successfully install.

I know that was a lot to take in. I believe it is valuable. The reason I was so thorough was to point out that it's possible to close on a really sizable asset if you know what you're doing. The territory between search fund and independent sponsor is really murky. It's actually less one of asset size and much more about the economic model you follow.

I know people who bought businesses close to $100m in enterprise value who did what you'd call the search fund model out of school. For the bigger outcomes, it's got to be an asset you're really familiar with in a space you're really familiar with with a capital partner who's really familiar with you.

There's no reason you can't buy a business that you think makes sense to own that your boss at a private equity fund ends up not wanting to pursue. There's just a tremendous amount that goes into it, so I took some effort to outline how being intentional from the start positions you really well in advance to capitalize on that opportunity when it presents itself. And it will, seriously.