Search Funds

The landscape of entrepreneurship is in a constant state of flux, continually reinventing itself as new strategies, methods, and options emerge. In recent years, a remarkable trend has gained momentum: entrepreneurs opting for search funds as their pathway to business ownership. This shift suggests an exciting bridge forming between traditional entrepreneurship and acquisition entrepreneurship. This article unpacks the reasons for this evolution and explores the compelling concept of search funds.

The Emergence of Acquisition Entrepreneurship

Acquisition entrepreneurship offers a significant advantage of instant impact. Instead of investing time in developing business plans and prototypes, entrepreneurs with search funds step into a thriving organization where their decisions have immediate, substantial effects. Moreover, managing an already established business offers a more flexible lifestyle compared to launching a start-up or leading a large corporation (Ruback & Yudkoff, 2017). An excellent example of this is the story of Kevin Taweel and Jim Ellis, who used a search fund to transform a small roadside assistance company into Asurion LLC, a major cell phone insurance provider with 17,000 employees and approximately $9 billion in revenues (Andrews, 2018)

What’s Driving the Trend?

So, why the rising inclination towards search funds among entrepreneurs? The primary driver is the shifting landscape of entrepreneurship, characterized by rapid technological change, fiercer competition, and higher start-up costs. Marc Andreessen, co-founder and partner of Andreessen Horowitz, stresses that contemporary entrepreneurs need to be more than mere product innovators - they should be primed to undertake the role of a CEO (Harvard Business Review Staff, 2013).

The Multifaceted Role of Modern Entrepreneurs

Andreessen’s insights shed light on the intricacies of modern entrepreneurship. He believes that contemporary entrepreneurs must have a versatile skill set that reaches beyond creating innovative products or services. Reflecting on his conversation with HBR’s editor-in-chief, Adi Ignatius, Andreessen emphasized the importance for entrepreneurs to assume diverse roles and oversee multiple aspects of a business.

The Strategic Advantage of Search Funds

In this context, search funds provide a strategic edge. They enable entrepreneurs to apply their innovation to an existing company with an established customer base, stable operations, and an experienced workforce. The risk of starting a business from scratch is significantly reduced, and entrepreneurs get to enhance their skills in a real-world business environment before venturing out independently.

Overcoming Capital Challenges with Search Funds

One of the critical challenges entrepreneurs face is access to capital. Raising funds can be arduous, particularly for inexperienced entrepreneurs. Here, search funds shine by providing a pool of investors ready to back the entrepreneur’s acquisition quest, offering them necessary resources to grow their business, thereby increasing their odds of success. However, it’s essential to remember that acquisition is not without risk. Search funds entrepreneurs should be prepared for potential culture clash, employee pushback, or unforeseen financial challenges post-acquisition.

The Future of Entrepreneurship and Search Funds

In conclusion, the rising trend of entrepreneurs veering towards search funds is a testament to the evolving dynamics of entrepreneurship. This innovative model allows aspiring entrepreneurs to apply their skills in a more secure environment and access essential capital for acquisition and growth. As entrepreneurship continues to evolve, search funds are likely to play an even more prominent role in shaping the future of business ownership.

References

Andrews, E. L. (2018, October 15). How CEOS-in-waiting buy the companies they want to run. Stanford Graduate School of Business. https://www.gsb.stanford.edu/ insights/how-ceos-waiting-buycompanies-they-want-run

Harvard Business Review Staff. In search of the next big thing. Harvard Business Review. (2013, May). https://hbr.org/2013/05/in-searchof-the-next-big-thing

Ruback, R. S., & Yudkoff, R. (2017, January). Buying your way into entrepreneurship. Harvard Business Review. https://hbr. org/2017/01/buying-your-wayinto-entrepreneurship

Martine Legault Founder & Managing Director, Lyra Capital