Search Fund Interview
I am currently interviewing for a potential internship opportunity at a recently launched search fund, and I have to prepare for the upcoming questions. This search fund doesn't have any specific preferences for its target businesses so the usual characteristics apply:
Competitive advantage; High recurring revenue; History of cash flow generation; Motivated seller for nonbusiness reasons; Fits financial criteria, e.g., $10M to $30M in revenues and greater than $1.5M in EBITDA; Multiple avenues for growth; Solid middle management; Available financing; Reasonable valuation.
It doesn't have a history of acquisitions and its looking for businesses in a specific location (can't disclose but think of it as a certain country outside of the US)
And here are the main questions we will go over on the interview:
• Your view on the best industries for this search fund to be targeting.
• Your view on how this search fund should be identifying and engaging businesses within these industries.
• Where you feel you could add the most value to this search fund's efforts to source and acquire a business
These questions are very general and are just meant to prove I can demonstrate a clear understanding of search fund target business and industry characteristics I guess, nothing too specific.
If anyone is familiar of this niche part of the private equity, could you please talk about what you think is important for me to talk about, as an intern
Its unpaid my friend you are getting this offer no matter what
Lol good point but I still have to say something
Sounds... interesting. Any shop should have a history of deals if not current portfolio companies.
Not worth your time imo unless it's paid or they have a demonstrable track record.
Tbh, that's true, but the founder has just started the launch (he's the only person on the team). Where do you recommend me looking for similar internships as an undergrad, besides searchfunder?
Yea i second this - search funds r pretty chill to get and the criteria u listed is not "niche", every search fund EVER goes off that criteria. The type of work u'll get is very dependent on the partner (are invested in ur development or r they just using you for free labour?). Going off of some of the other comments, i think sourcing is an unbelievable waste of time - pretty meaningless work, not usable in interviews, redundant and repetitive, etc. Unfortunately, as a newly started search fund, cant say for sure, but they would likely get you to just do a lot of sourcing because they have 0 potential acquisitions and are not even close to the due diligence phase. And so, try to look for opportunities that will get you to do more than just sourcing and gives you a good learning experience. Given how accelerated finance recruiting is, this internship will likely make up the majority of your "finance experience" --> make sure you can speak more to the experience than just sourcing X amount of companies per week. Scour linkedin, look at where upper years worked, chat ppl at the firm to make sure you're getting an experience that's actually worth your time.
To answer your question about the interview, dude I completed a search fund internship and still can't tell you. These processes r super chill, but i'd say jus come off as someone who is down to learn and take on responsibility cuz 1. it rubs off well and 2. it affirms that you are looking for a position that is more than just sourcing (CANNOT STRESS THIS ENOUGH, sourcing is inevitable for first-year internships, but make sure ur firm will give you more meaningful responsibilities than just sourcing!!)
Did like 10 of those interviews earlier this year tryna find sth to do freshman summer, not working at one cuz i got lmm pe, but your post looks exactly like some of the sf interviews i had. Its rly basic stuff, and even if u dont know the answer, dude will literally teach u and help u through the thinking process. Honestly, i say ditch those search funds and just go for lmm pe, at least those r usually not a one man shop with no track record. To answer where to find similar jobs, linkedin is ur best friend
Worked at a search fund my Sophomore year of college during the year, could not disagree more with some of the earlier commenters saying this isn’t worth your time. It is not remotely unusual for a search fund to have no prior transactions and it certainly doesn’t mean they have nothing to offer you. Many funds operate under the umbrella of family offices or the like and are interacting with many sophisticated investors on a daily basis (in addition to the person running the fund likely being very qualified). I learned an unbelievable amount about accounting, sourcing, the deal process, valuation, and how to work in finance during my internship and actually got to close on a deal during my time.
To answer your questions:
1) Industry characteristics to look for are low concentration, high recurring revenue potential, high growth, pricing power, low capital intensity, high margins, large industry, low cyclicality, low information barrier for new owners etc. You will obviously not find an industry that fits all of these categories perfectly, but this is a chance to show you understand what makes an attractive industry in the real world. I would recommend looking at Ibisworld if you school gives you access to that.
2) Given the size of the companies you are looking for, I would recommend first using a broker to source deals, but more importantly doing intensive and tedious prop sourcing to generate your own leads. The vast majority of potential acquisitions in this space are not listed anywhere, there are services that provide the names of thousands of companies, it will likely be your job to go through them and find contact information for the search partner to reach out (not fun but necessary). When reaching out, it’s important to focus on the personal connection these owners have with their business and their employees, since in all likelihood they or their family started and grew this company. Emphasize that you are not a purely financial buyer (you plan to purchase and run only this company) and are interested in making money by growing the company and doing good by the employees, not by shrinking it.
3) Sourcing will almost certainly be your primary job responsibility. It is not engaging at all at this level, but it needs to get done so your best value-add is showing you are able to handle grunt work and provide leads to the searcher.
Feel free to PM if you have any more questions.
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