In my freshman year Finance 101 class, my professor brought in a friend of his who is a partner at a big 3 consulting firm to give us a talk about debt. He walked us through a basic LBO, and specifically one he performed back in the 80’s where he brought a common product overseas. However, what was cool about it is that he wasn’t working at a fund, he was in his 20's and had a mentor help him with it. The business ended up selling for low eight figures after 6 years. Almost all the capital put down was for fees and funded the project mostly with debt. Later in his talk, he said something along the lines of “why would you start a business when you can buy one, and take out a lot of the risk that new businesses face?” which really struck home with me.
So, Monkeys, has this been something you’ve ever thought of doing? After a few years of banking, and then perhaps a few in PE, going out on your own, maybe with a few other people, and making your own deal(s)? Admittedly, I don’t know the environment for this type of lending but would love some insight from anyone that has it. Although we do not live in the environment of the 80’s, there are tons of businesses that are too small to be on the radar for a lot of MM PE shops, but could be made much more profitable by someone taking over who's spent a few years in NY/SF/other Finance Hub sharpening their teeth. Really interested to hear some commentary on this.
Interested in this aswell
bump
Isn't this similar to a search fund?
It is a search fund.
Yes, there are a number of interesting businesses in this space, and there will be many more as entrepreneurial baby-boomers retire and their kids move into tech rather than carrying on the family business. However there are also many more people trying to do this, and it's not nearly as easy as this guy made it sound. Failure rates are high.
Also, given the required company profile needed for viable targets, there are only so many industries and business models that you can enter through traditional search fund economics. You'll never be able to purchase a high growth tech company and you won't be disrupting anything (though most people who think they will never do either). Entrepreneurship through acquisition is a great path, but you'd have to be realistic about the risks and the type of business you'd likely end up owning.
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