"How CEOs-in-waiting buy the companies they want to run"
In a Fast Company article, Edmund Andrews introduces readers to the “search fund “concept, and explains why and how MBAs are turning to search funds as a means of running their own businesses.
“In a search fund, entrepreneurs–often newly minted MBAs–find investors to finance and mentor them. In the search phase, investors essentially pay the entrepreneur to scour the country for a company with potential. In the acquisition phase, the investors back the entrepreneur with capital to buy the company, and some of them provide guidance to build it into something bigger.”
“There has been tremendous growth in the past 10 years, and it’s been driven by entrepreneurs who want to become owner-managers without starting their own companies from scratch,” Kelly says. “These are solid companies in very attractive industries, and the entrepreneurs buying them are on their way to becoming excellent CEOs. They’re just inexperienced and need mentoring to be successful.” -Peter Kelly
“What drives young MBAs or mid-career executives to launch search funds? The most common trait, Kelly says, is the desire to own and lead a company. For people right out of graduate school, who usually don’t have the track record to run a large enterprise or the money to buy a company on their own, search funds offer a way to become owner-managers without having to build a business from the ground up.”
“The average purchase price in 2017 was $13.1 million. As with traditional private equity funds, investors provide equity capital for a substantial part of the purchase price and borrow the remaining amount.”
Read the full article in Fast Company.
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