Eddie Ovey (MBA ’19) shares guidance for ECs considering entrepreneurship through acquisition.
The EC year is a crucial career juncture – as a prime moment to explore job opportunities and prepare for your professional future. Many of you may be considering launching a search fund and will start to prepare by taking Financial Management of Smaller Firms and joining the ETA club. Some will then decide this is the right path early next year, and seriously engage investors to raise their fund and start searching. However, even with this preparation, many new searchers find it takes several months after launching to start searching effectively.
This learning curve isn't unique to recent MBA graduates. This year, I launched my traditional search fund, Grandview Peak Capital, nearly five years after graduating from Harvard Business School, and yet, it still took several months to scale up my search effectiveness. Drawing from my personal experience, this article aims to provide those of you thinking about search with five areas of preparation to prioritize during your EC year so that you can efficiently search shortly after graduation.
1. Focus on a select few industries.
Search is no longer a secret. Not only are many MBA graduates raising a fund from investors to search full-time (traditional search funds), many are also searching part-time or full-time while drawing on previous savings (self-funded search). Stanford has been tracking and reporting on traditional search funds since 1984, and as of 2023 the count had reached 681 traditional search funds raised. Most importantly, in 2023, 94 traditional search funds were raised, nearly 14% of the forty-year total.
This increased appetite for entrepreneurship through acquisition is felt first-hand by business owners. They’re now inundated with emails from “entrepreneurs seeking to buy one exceptional business” and “preserve their legacy.” In the search community, you’ll often hear the retelling of the anecdotal (but probably true) story of a business owner who accumulated all these emails in a folder, and then when he finally decided he wanted to sell his business, he just picked a random “entrepreneur” in that folder to start discussions with.
How can you differentiate yourself, not only from private equity and strategic buyers, but also the increased number of other entrepreneurs looking to “partner with one great business”? The answer is to be thoughtful about the industries in which you want to search.
Owners will be much more inclined to engage with you if they recognize that you embody the same passion and knowledge about their industry as they do. If you can provide unique insights in early discussions, they’ll see you as a key thought partner. And if they’re close to the stage of selling their business, they’ll see in you someone that they could trust. Therefore, it’s important to spend time during your EC year contemplating the macrotrends, industries, and business models you’d target during your search.
Having worked as a chemical engineer before business school, I decided to start my search in the chemicals industry with a few specific business models I liked. While I plan to do additional searching over the next few months in chemicals, I’m also starting to tee up another large industry to focus on, hopefully for an even longer duration.
2. Understand your unique strengths.
In whatever business you buy, there will be new skills to learn and new challenges to face. But considering that 31% of traditional search fund-acquired companies have ended as partial or total losses, it’s critical to buy a company that you will be capable of leading through ups and downs.
Imagine yourself as the CEO of a small company. You start your day with several meetings coaching and training your teams. Next, you spend time working on a potential M&A opportunity to tuck into your company. Lastly, you have several calls with your product and engineering teams to discuss the next three product development sprints. Which of these activities did you find energizing? Did any of these activities cause you dread?
It's important to take time during your EC year to understand what kind of CEO journey you’d like to have and what unique strengths you will bring as an operator. If your background is in M&A, perhaps you should explore roll-up theses instead of buying a small software company. Or if you have experience leading large teams, perhaps you should consider services businesses with a large in-person workforce instead of businesses that work remotely.
With my more technical and operations background, I’m focusing on finding a tech-enabled services or software business. While I’m not opposed to opportunistic, inorganic growth, I have not pursued roll-up theses as I don’t believe it matches my core strengths.
3. Build relationships with investors.
This is a key activity during EC year – networking to determine which investors you will partner with long-term for your search fund.
Look for investors that understand the industries in which you’ll search, and the growth paths you’ll pursue. An investor may have more experience in blue collar businesses, health care, or software. Partnering with investors whose experience you value is not only important during the search but becomes even more important in building a strong Board of Directors post-acquisition.
Look for investors that can add value to your search, beyond the experience they bring on paper. Try to understand how many searchers they support each year and how many Boards they currently sit on. This will help you understand their bandwidth and likely responsiveness. Try to understand deals that they decided to pass on, why they passed, and their process in coming to that decision.
Most importantly, look for investors that you trust and enjoy talking with. Hopefully, these investors will be in your life for the next 10 years, so make sure you enjoy interacting with them and are eager to build long-term relationships.
4. Email deliverability.
Before I launched my search fund, my first email sequences had 90% open rates and 35% reply rates. “I’m getting the hang of this,” I initially thought. As I scaled up my second set of sequences, I was suddenly closer to 65% open rates and 15% reply rates. What changed? Was it industry-specific dynamics in my target fields? Had my email quality lowered? Were there other factors at play?
Many searchers are finding that it’s become increasingly difficult to have emails land in business owners’ inboxes during cold outreach, largely due to email changes made by Google earlier this year. Current hot topics in search include how to set up your email properly, how many daily emails to send, how long email sequences should be, and the like. However, there is one thing that searchers can’t change, and that’s the age of their email domains.
One of the key factors that influences email deliverability is how long the email domain has been functioning and healthy. Figure out early on what your search fund name will be and buy two to three domains similar to this name this Fall. Then start very slowly, just sending a few emails per day from those domains and use them more actively for non-search activity during your EC year. That way, when you get serious about using those domains in the Summer or Fall after graduating, you’ve built up healthy and reputable domains for your outreach that also have one-year domain age.
5. Start searching part-time.
Searching is all about selling yourself. It’s important to be strategic, thoughtful, and analytical when it comes to selecting the industries and business models on which you will focus. But in connecting with business owners, you’re ultimately selling yourself. And selling requires reps – lots of reps.
You don’t need your search fund raised and tech stack in place to start getting reps at a small scale today. Pick an industry of interest and start building connections. Attend a conference. Connect with experts to help you ramp up and navigate the industry. Practice communicating your value prop as a business buyer compared to the alternatives a business owner may be considering.
As I started dabbling in search even before talking with investors, I found the work hard but enjoyable. I enjoyed learning about different business models. I enjoyed talking with business owners. I didn’t enjoy some of the blunt rejection I got from business owners and brokers, but I also realized I could handle it. By experimenting, I was able to then fully commit to this next step in my career.
Summary.
Most of you thinking about launching a search fund are exploring many career paths in parallel. That’s to be expected and is the right approach – explore! However, if you are considering a search fund, my advice is to actively explore it. You learn best by doing. The above recommendations help you not only explore if this path is right for you but will also help you search more effectively when you officially launch.
Eddie Ovey (MBA ’19) is originally from Iowa but now resides with his wife in Utah. His work experience includes strategy and program management at Entrata, sales and operations at Homie, tech and supply chain consulting at Deloitte, and operations at Dow Chemical. He has an MBA from Harvard Business School and a BS in Chemical Engineering from Brigham Young University.
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