Entrepreneurial Plan B?  

Posted by Dino Gane-Palmer né Ganesarajah in , , ,

Jim Southern, a serial search fund entrepreneur and investor, spoke at the UK MIT Enterprise Forum. Picture from the NYTimes article on search funds ©.

An MBA opens doors. This week I stumbled upon a door that few take, yet is typically difficult to break open without an MBA from a top business school. Described as a high-probability way of making good returns on investment and entrepreneurial effort, search funds are funds that are typically only raised by alums of top business schools. Essentially, search funds are a way for entrepreneurs to raise money to acquire a company. Once a company is acquired, the entrepreneur works to improve the profitability of the company over a period of 5 years or so, before selling it on for a profit - taking a 30% share of that profit. Usually that 30% share will be worth several million US dollars.

I stumbled upon the idea at an MIT Enterprise forum event earlier this week; I had been to their events before. On this occasion, Jim Southern explained the mechanics of search funds and went through a case study of how search funds work. One of the ideas that struck me about Jim's talk was his point that in the normal entrepreneurial path of building a company, only 1 in 10,000 or 1 in 100,000 people are successful in generating a multi-million dollar earn out. Yet, through the search fund process, the probability is more than 25%.

As Jim Southern's talk progressed, I got more and more excited about the search fund vehicle. The disheartening part for me was that the search fund process prefers acquisitions of companies with simple operational processes, e.g. a freight forwarding company or events company. This is because it makes it simpler for the entrepreneur to understand the process of the company and improve the profitability. Under this restriction, I would have to give up my preference for new media, which I have built my career on. Software development, which is at the heart of new media, can be complex - at times it can seem like a process that does not have a process. This makes it less than ideal for a search fund. However, I find new media exciting and engaging.

Consequently, at this stage - while I am enticed by the idea of search funds - I am reluctant to give up on my new media entrepreneurial plans. Setting up search fund might be a good "Plan B" for me though, if by my second year at Kellogg all else has failed.

The New York Times has a recent article on search funds. Stanford GSB has the most research and information on these funds.

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12 comments

Wow. Search funds sound like a really interesting idea. I'll definitely have to look into them some more.

Thanks for the tip!

27 May 2009 at 00:54

Wow. Search funds sound like a really interesting idea. I'll definitely have to look into them some more.

Thanks for the tip!

27 May 2009 at 00:54

Damn, was afraid of that! Just kidding ;-)

I think some Kellogg students have already done it. I saw one line description somewhere on some PE/VC club document some time ago.

27 May 2009 at 01:17

Damn, was afraid of that! Just kidding ;-)

I think some Kellogg students have already done it. I saw one line description somewhere on some PE/VC club document some time ago.

27 May 2009 at 01:17

Great concept - I'm still unsure as to how much of an entrepreneur you are DG, I say this with respect. But, traditionally entrepreneurs are so passionate about their idea, they run with it, not wait around. It sort of defies the whole meaning of the word entrepreneur when you think about it. This is one of the problems with MBA's and why the ratio of non-MBAs to MBAs is far greater when measuring success outside of the corporate structure. MBA's think too much..

There is a very funny and related post re chocolate cake here;

http://dreamer-choc.blogspot.com/2009/05/lost-generation.html

27 May 2009 at 17:48

Great concept - I'm still unsure as to how much of an entrepreneur you are DG, I say this with respect. But, traditionally entrepreneurs are so passionate about their idea, they run with it, not wait around. It sort of defies the whole meaning of the word entrepreneur when you think about it. This is one of the problems with MBA's and why the ratio of non-MBAs to MBAs is far greater when measuring success outside of the corporate structure. MBA's think too much..

There is a very funny and related post re chocolate cake here;

http://dreamer-choc.blogspot.com/2009/05/lost-generation.html

27 May 2009 at 17:48

My humor may not translate well in some parts of the world, so I've snipped that out in above post.Hi Fin. You are right; traditionally entrepreneurs do run with it and don't wait around. Yet 9 out of 10 fail within two years and only 1 in 10,000 (or 100,000) achieve great success.

I know you won't buy this, but I say there is ample reason to reassess what's out there and see if there is a better way to get to your goal.

28 May 2009 at 20:48

My humor may not translate well in some parts of the world, so I've snipped that out in above post.Hi Fin. You are right; traditionally entrepreneurs do run with it and don't wait around. Yet 9 out of 10 fail within two years and only 1 in 10,000 (or 100,000) achieve great success.

I know you won't buy this, but I say there is ample reason to reassess what's out there and see if there is a better way to get to your goal.

28 May 2009 at 20:48

Hello D.G.
Your Humor was fine, you ought to have left the post alone. I thought it was superb.

I'm not the good looking black guy in the video, though I like his style (there, you have to repost it, or your readers will wonder what on earth we're talking about).

Point taken about the statistics, but what you haven't extrapolated for us, is how many of those supposed failures and successes are MBA's and how many are mere mortals.

I think you'd find the result surprising, as it would still show that an MBA is no more a guarantee for entrepreneurship than raw passion, great intuition, and large proverbial balls.

I understand that you want to give yourself the maximum winning potential, but I think you may have that already, and an MBA may just temper it too much...

29 May 2009 at 04:06

Hello D.G.
Your Humor was fine, you ought to have left the post alone. I thought it was superb.

I'm not the good looking black guy in the video, though I like his style (there, you have to repost it, or your readers will wonder what on earth we're talking about).

Point taken about the statistics, but what you haven't extrapolated for us, is how many of those supposed failures and successes are MBA's and how many are mere mortals.

I think you'd find the result surprising, as it would still show that an MBA is no more a guarantee for entrepreneurship than raw passion, great intuition, and large proverbial balls.

I understand that you want to give yourself the maximum winning potential, but I think you may have that already, and an MBA may just temper it too much...

29 May 2009 at 04:06

Hey Fin. I agree that an MBA is no more a guarantee for entrepreneurial success than anything else. I do think it can put you in places and situations that can greatly help. I might do a post on that soon...

As you insist, this is the paragraph snipped off the end of my last response; it makes reference to the comment thread on this post:

BTW. I imagine you to be a good looking black guy who raves about teleportation devices ... or at least flying cars. Am I right?
http://www.youtube.com/watch?v=LrFgRAcr0jg

30 May 2009 at 14:13

Hey Fin. I agree that an MBA is no more a guarantee for entrepreneurial success than anything else. I do think it can put you in places and situations that can greatly help. I might do a post on that soon...

As you insist, this is the paragraph snipped off the end of my last response; it makes reference to the comment thread on this post:

BTW. I imagine you to be a good looking black guy who raves about teleportation devices ... or at least flying cars. Am I right?
http://www.youtube.com/watch?v=LrFgRAcr0jg

30 May 2009 at 14:13

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