The Bullshit of Search Fund & Entrepreneurship through Acquisition
I asked Myself: “Are You Sure?”. This is the question I asked myself two years ago when I heard about search fund or Entrepreneurship through acquisition.
The shocking thing about a simple question is to start a dialogue with yourself a deep conversation that can clarify, and nourish. But before we dive in my personal tragedy let’s talk about what is a search fund ladies and gentlemen.
A search fund is an investment vehicle, conceived in 1984, through which investors financially support an entrepreneur’s efforts to locate, acquire, manage, and grow a privately held company.
The model offers relatively inexperienced entrepreneurs with limited capital resources a quick path to managing a company in which they have a meaningful ownership position.Since 1996, CES has conducted a series of studies on the performance of search funds . CES has identified and tracked more than 400 search funds raised since 1984 in the United States and Canada.
growing cohort of international funds located throughout western Europe, Latin America, and India are tracked by our counterparts at IESE Business School in Barcelona, Spain. A 2020 CES analysis of 401 qualifying search funds found the aggregate before taxes internal rate of return to be 32.6%, and the aggregate before taxes return on invested capital to be 5.5x.
Sounds we can make a good amount of money easily and be multi- millionaires in span of five to seven years, this is only on paper, let me tell you the hard truth about this dumb method, the real story behind my failure in making this method works.
Everyone that follows my medium, know that I am a tech guy, I’ve working in the Information Technology industry in the last 18 years, started as a software engineer, then study robotics and data science, made the change to data scientist and then working as data engineer in the last three years.
Two years ago I stumbled on a YouTube video from Graduate School of Business Standford talking about the search fund methodology and how it can be implemented without using our money BIG LIE HERE, I’ll tell you later why it’s a big lie. I watched all the videos of their channel numerous times, downloading all the documentation that they put in their Center for Entrepreneurial Studies(CES) website, I read every document I could find from the CES, I spent in this learning step two months, immersing myself in all this new world, reading guides and blogs regarding the search fund.
In the next level of this game I contacted people to create my team, I sent emails to one hundred people exactly, great people from different backgrounds to create a team of experts, lawyers and accountants, I made twenty to thirty interviews with them, at the end I had my squad formed and ready to conquer the world.
My second step was contacting the investors, people that have a lot of money and ready to invest it without any effort. So here I used my data engineering skills to search and found 491 investors, I used the following pipeline, started with an email service like SendGrid, to put all these 491 investors, message them every week to see if there are some interested and then contacted them by phone or using video calls. From these 491 investors I got 50 bad response, 400 did not even reply to me, and 41 gave me good response, these 41 response end up being 20 interviews, which finally results in 12 investors were particularly committed.
At the beginning is easy and nice, they gave you free advice here and there they told you, that you need to work hard and sooner or later you will become rich, very far from the reality. This beautiful dream turn into nightmare, so you’re asking why is that? When the shit hits the fun, nobody want to be near you.
When I asked them for money to fund my search fund nobody wants to give me a quid, first red flag here. They told me when you find a good company we will jump in, this why I told you at the beginning is a BIG LIE, because I have to use my savings, I have to burn them, I have to self-fund myself in this project. Some of them have nonsense reasons like you need to study an MBA to do it, ask yourself if I have the money to study an MBA, why I have to choose this route of entrepreneurship, I can study the MBA, and find a high paid job with bonuses in a big company. Others they wanted me to pay them if I want their advice. And the last group have good reasons, the economic situation is bad and we can’t deploy capital in many search fund, just remember I did this project when the COVID-19 pandemic just kicked in.
The second red flag happened when I asked them to put their names in my website so I can have more credibility in front of the owners of the companies, some of them said no, and others didn’t even bother to reply to my emails. After these two red flags my gut feeling told me to stop but I didn’t listen to him. let’s move on to the next step.
My third move is contacting searchers to find out if still opportunity and market there, or it’s dead. So I used the same process as I did with finding the investors and I found 279 searchers in UK and EU. I sent emails every week, from these 279 searchers, most of them they didn’t answer my emails, some of them said no, others said yes, but didn’t answer my calls, finally we got twenty one interviews, most of the interviewed searchers they recommended me not to do it, third flag here, their logic first there is no market here, second the investor community are not helpful. Only two searchers they told me if you work hard and you have luck you’ll find a good company, here I give my acknowledgement to all the searchers for being brutally honest with me.
After these three red flags you’re asking why not give up my friend and I didn’t did it because of this quote:
“You should not give up unless you are forced to give up.” Elon Musk
The next station in my journey is looking for the holy grail, the best company to buy and get founded by investors and banks. Here I took a different approach I used a combination of my data engineering skills, data science skills and common sense from searchers’ insights. I went to company house website, applied the mentioned skills, design a data pipeline and finally got a lovely 1121 companies. After I got all these companies I write another data pipeline using company house, google, Endole which is really a very bad SaaS tool, a waste of money. I looked for names, addresses, emails, phone numbers, websites and financial statements to build my data lake.
After setting-up my data lake, is the time to turn it into data warehouse. And you’re asking what the hell is the difference between a data lake and a data warehouse.
Data lake is raw, large and undefined data to refined, small and relational data which is the data warehouse.
For completing our data warehouse we got help from interns, we organize a process to find and hire the best interns from all around the world, the best interns are in US and Australia, nobody from UK, and EU, or Asia wants to work a couple of hours per week for free, they wants to get paid even when there are students in the university, many thanks to all my interns from US and Australia.
Afterward we ensembled another pipeline to send physical mails, emails, and doing cold calls to all these companies, the hardest part here is the cold calling because some numbers are wrong, and if you find somebody in the company, they told you, who you are because you didn’t enough credibility in your website , we end up with only four companies these companies are our last opportunity to become a multi-millionaires.
Last milestone is to interview the owners of these companies, sign nondisclosure agreements, study their financial statements, and send them a letter of intent before buying these companies, it turn out all these companies are trash, you’re asking WHAT? From 1121 companies you found only four companies that are junk. Yes my friend, none of them is worth the asked price. We uncover huge debt in the first company, second one have a magic accounting in their financial statements, the third the owners want from us a proof of our funds, and last company having a parent company, the owner only wanted to sell the company and not their parent company very disappointing.
Before I closed my search fund I reached out to my investors again, and other new investor, most of them didn’t reply to me, others told me you didn’t work hard enough. You know who works hard? Fucking everybody. Including the person who makes your lunch, cleans your streets, drives your buses. Do you think those people are just missing your work ethic and determination?
There is no need to act like the people who are not at the top of the professional food chain are only at the bottom because of a lack of grind. Everyone is grinding, you just happened to have a good luck(and probably had a little bit of money to help along the way). The lack of humility and perspective in the investors world is probably the worst thing about it, because it’s not just misleading the people who might want to follow the same path: it’s acting like the people who haven’t only haven’t because they’re lazy.
At the end I have to quit, because I burned all my savings, and I have a family now, I am not by my own, I have a wife and a baby that depend on me, so I have to look for a job in my industry again this time as System Consultant, please don’t try this at home, don’t try this route because it’s very dangerous.
Zaid Alissa Almaliki
Thanks for reading. If you loved this article, feel free to hit that follow button so we can stay in touch.