… EXCERPT …
Investing in a search fund is not a hard-headed decision; whether to invest in an acquisition is the key decision, and the investor’s ability to decide on acquisition investments correctly is critical to achieving good overall returns. Investors with the best returns have been good at selecting which deals to invest in; the ones they have passed on have barely returned capital.
While horses may be more important than jockeys, good jockeys tend to end up with better horses.
“The search fund model addresses a fragmented and inefficient part of the market– deals too small for institutional investors and too large for groups of angel investors. Search funds benefit from the fact that companies with EBITDA below $5 million are not attractive to the rest of the world; yet once the entrepreneur builds the company to EBITDA above $5 million, the rest of the world wants it and is often willing to pay a high price for it.”
Rob Johnson, IESE