In the past, graduates from top MBA programs looking to lead companies joined the middle management teams of large, established firms and worked their way up the corporate ladder to eventually land in the C-suite.
While this track still remains popular amongst many of today’s talented young working professionals, many ambitious graduates are actually now opting to skip the corporate ladder altogether to pursue an alternative path to becoming CEO. This subset of people include entrepreneurs looking to build a startup from the ground up with help and funding from venture capital firms. Entrepreneurs who build successful startups have the option to sell to a Private Equity firm or even take the company public. Within the world of venture capital and private equity, there is a lesser known entrepreneurial path called entrepreneurship through acquisition (ETA) that involves specific investment vehicles called search funds.
Search funds are a perfect fit for talented MBA graduates who want to operate their own company, but don't want to build a company from scratch.
Traditional search funds are funds raised by aspiring entrepreneurs, otherwise known as "searchers", to provide two year's worth of capital to find and acquire an small yet scalable and enduringly profitable company. Fund proceeds are used to pay for costs related to marketing and outreach, due diligence, and basic ongoing living expenses for the searcher. If an attractive deal is found, searchers then move on to the acquisition phase, which involves extensive—and often times very costly—due diligence related to the company in question. If the company passes the due diligence test, searchers return to their investors to raise the additional equity needed to finalize the acquisition. Investors provide searchers an opportunity to earn a sizable ownership percentage of the business without ever having to put a single cent into the business.
The search fund model is a very attractive proposition for ambitious MBA graduates because the initial financial risk profile is low. Searchers who fail to find an attractive acquisition suffer no financial penalty aside from the opportunity cost of a couple years of corporate experience. In contrast, the upside for a successful searcher is asymmetrically high. Searchers have the potential to receive sizable equity stakes, attain invaluable experience as the CEO and operator of their own company, build deep networks from their search fund partners, and eventually reap the benefits of potentially significant financial payoff when they decide to exit from the business many years down the road. Even the few unsuccessful operators can re-enter the job market with meaningful leadership and managerial experience.
The search fund industry is still very much in the infantile stage. There is a tremendous untapped potential of business deals out there that are too small to draw the attention of larger-sized traditional private equity firms, but provide the perfect opportunity for aspiring entrepreneurs. GT Entrepreneurs (GTE) is looking to partner with said entrepreneurs by providing search guidance, expertise, and capital to help them succeed in their ETA journey.