Where to ‘Search’ for Returns?

Where do you find returns that have consistently exceeded 30 percent IRR and 3.0+ ROIC?  Just to calibrate: such returns would fall well within Top 10 percent of all private equity and venture investment performance. And they were generated over the last 25+ years, which covered many up- and down- cycles. The answer is: Search Funds.

Pioneered in the 1980s, search fund investing involves backing young entrepreneurs (most frequently, recent graduates of top MBA programs) in their search to acquire and subsequently run the acquired businesses. On the face of it, backing relatively inexperienced managers seems quite risky, so what is happening that mitigates these risks? Three main things: First, it turns out that talent trumps the experience. Upon, reflection, it shouldn’t come as a surprise: you can augment talent with experience but it’s much tougher to augment lack of drive or basic human capability. Second, these entrepreneurs focus on strong businesses that tend to have significant recurring revenue streams. And third, they focus on the lower/lower-end of the middle-market which is still relatively inefficient and where the acquisition multiples are lower and still quite attractive. 

Interested in learning more?  Let us know and we would be delighted to talk to you, share our experience in this space and explore how you might participate.