Quitting PE for entrepreneurship

Seconding what Layne Staley wrote.

I love that classic quote: "The best time to plant a tree was 20 years ago. The second best time is now."

Assuming your search fund model includes a budget-based management fee (to cover a modest livable salary while you execute the search), this is an absolute no-brainer.

If your model as of now does not include the fee, you need to go revise it such that it does. No one backing you for this should be willing to see you starve; it creates a misalignment of incentives where you may be motivated to close on a deal simply because your personal burn rate is heavy and cash cushion is waning rather than because the deal is attractive.

Secondly, make sure you write into your formation docs that you have the freedom to add in other LP capital if you come across it. Have the lawyers include language that any budget-based management fees paid in by the original LP(s) will be reimbursed plus interest pro rata to the new LP(s) investment.

That shouldn't be an issue at all. If someone is willing to back you at all, they ought to be happy to see you scale your basis for success.

You will be surprised how easy it is to make a positive impression in the fairly insular community of search fund LPs. There are three prominent b-school conferences each year: GSB (usually September), Booth (usually November), and HBS (usually December).

You'll meet like-minded peers with backgrounds both identical to your own and a bit different (operational rather than financial), faculty and former search fund principals who are there to give back by sharing lessons with a younger generation, and the institutional or private HNW investors who deploy capital into the asset class.

You're actually in the best shape of any aspiring search fund principal attending those events because you already have seven figures of committed capital), so when you're introducing yourself informally to the other attendees, you're automatically going to get a lot of attention.

This means you will be in a favorable position where can you vet the b-school students or other PE 'drop outs' for a potential partner in your fund. Secondly, you'll probably 3-5x your committed capital. It's like every other fund strategy; no one wants to be first money in, but once you look like the guy the other girls want to date, you find yourself drowning in it.

(Seriously consider finding a partner. Entrepreneurship through acquisition is challenging primarily for how much of a mess even the best run micro-businesses are. You buy the thing because it has healthy financials and a clear path to growth, but you find yourself bogged down in day-to-day operational stuff that anyone with half a brain [but clearly not prior management] could do. You want a second or third set of competent hands on your side where you can amortize that pain and regain some bandwidth to focus on the truly high-level strategic stuff.)

Don't be apprehensive about scaling your committed asset base. You are going to do the same amount of work for a $2m EV acquisition as you are for a $20m one, but assuming the same relative performance improvement (e.g. 5-10x EBITDA growth) holds true, you get paid dramatically better.

Lastly, from how you write I get the sense that you're in the UK or somewhere else outside the States. I want to caveat my prior comments about your ability to scale assets with the point that I don't know how strongly enthusiastic the investor set is going to be about a foreign investment. Ignore this if you're already in the States.

Best of luck.