From a business owner’s perspective, search funds have a bad reputation. And, perhaps rightfully so. Just when things are primed to take off, the search funder knocks on the door....
Jimmy, it’s very nice to meet you.
What’s that you say? You’re interested in a reverse search?
That’s great news! As you’ve probably already read in my article on Axial.net, virtually everyone benefits by reversing the search fund equation. In addition, the process is much more efficient than a traditional search, saving significant time and money.
But, Jimmy, I want to slow things down for a minute. Many of your colleagues have incorrectly assumed that a reverse search fund is a cake walk. Somehow, simply by connecting with me, all of your entrepreneurial dreams can instantly come true. Even if this were true, it certainly would not be good. Let me explain.
I know you’re a realist, Jimmy. You understand when something is too good to be true. So, before we take this relationship too far, allow me to recount your responsibilities (should you choose to lead a reverse search).
Impressing the Founder
Now, Jimmy, we all know that a “reverse” search is substantially different from a traditional search. The primary difference hinges upon the formation of the relationship. Traditional searches start with a top-down approach, typically funded by private equity firms or angel investors and administered by an MBA. The MBA’s mission is to identify the “needle in a haystack”: the founder who is ready to sell a successful business for a significant discount. On the other hand, a reverse search starts as an organic desire to exit by the founder. The business owner partners with a qualified MBA, who helps to package and market the opportunity to investors (hence the reverse).
In either circumstance, the MBA has the responsibility of impressing the founder. Unfortunately, many of your colleagues wrongly assume that a reverse search reduces the need to sell yourself to the business owner. On the contrary.
Keep in mind, Jimmy, that there are hundreds (if not thousands) of seasoned search fund MBAs to choose from. In fact, since launching ReverseSearchFund.com just a few months ago, we’ve already had dozens reach out. To stand a chance of success, you must have compelling answers to the following questions:
- Why specifically should a founder partner with you?
- What skills do you offer (that other MBAs don’t offer)?
- Are you confident that, if selected, you can help guarantee an outcome?
- After the deal is done, are you able to step in and take the business to a new level?
- Do you have the right personality to swim with the search fund sharks?
- Are you willing to invest a significant portion of your life into this?
- And finally, given that unlike a normal search you have not spent 2 or 3 years invested in a search process how can you prove to everyone at the table , that you are 100% committed.
Not sure how to answer some of these? Then, Jimmy, you need to pause and develop your own reverse search fund marketing plan before going any further.
Working for Free, Sweat Equity
This is the showstopper for many MBAs. Unfortunately, the reverse search (at least at first) does not have the benefit of Wall Street bankers with deep pockets. No, Jimmy, it’s actually up to your creativity to create financier awareness, sell them on your founder’s pitch, and structure a winning deal. All of this the MBA does for free.
Did that scare you off, Jimmy?
You’re still reading, so that’s a good sign. Here’s the deal: you’re betting on your ability make things happen. If you can match the founder to private equity, then the sky’s the limit for you. Most likely, you’ll become the CEO of the company – or at least have a seat at the board. It’s really up to negotiation abilities and your business skills of course.
Until a deal is done, there won’t be any cashflow for you. Have the stomach, Jimmy?
Keep in mind that a traditional search was designed specifically to test the resolve of the MBA. Lengthy searches, drawn out negotiations, and low placement rates are all commonplace. While a reverse search is more efficient, founders and investors still need a way to filter out those not meant for the entrepreneurial world. Therefore, a reverse search requires you to have “skin in the game” by working for free during the search. The founder built his business without anyone paying his way; so why shouldn’t you, too?
Building a Mix of Solutions
Remember, Jimmy, your job is to help the founder navigate an exit. You need to be willing to think outside the box. You’ll also need to be the founder’s biggest cheerleader. Chasing leads, leveraging connections, making proposals, and identifying unique funding sources will be on your daily todo list.
Are you well versed in the recent regulatory changes that have dramatically altered the crowdfunding industry? Do you already have connections in the private equity world? If not, what is your plan to become an expert and help your client (the founder) achieve his goals? Like a sales funnel, you must build a pipeline of opportunities. Some will fail; others might work.
Only with the right knowledge and business development skills, can you actually build a suite of solutions for the founder. This is after all meant to filter or weed out those that can not or will not act and think like a Entrepreneur. If this was not true it would surely be a mistake for everyone including the MBA.
Remember, Jimmy, It’s Not Easy (& Not Supposed to Be!)
I’m not going to lie, Jimmy. All of this requires a tremendous amount of dedication to learning and a willingness to continuous self-evolution. It could take weeks, months, or years of work.
Are you up for the challenge?
If so, I’d like to talk to you again soon, Jimmy. Let’s meet for coffee.