Buyers and Builders
00:04:38 · Greg Geronemus
They're because they're evaluating which one can offer the best path towards ETA. So people will choose HBS because of Rick and Royce or GSB because of their search legacy or Kellogg because of their Zell Fellows program or Booth because of their initiative or Wharton, and the list goes on and on. There are roughly 20 different MBA programs in The US that have ETA courses, and it's become a big topic of conversation on campus. And it just could not be more different than what it was ten, fifteen years ago. And even outside of MBA programs, in 2010, you know, even though there were just whispers on on MBA campuses, there was very little discussion outside of MBA programs about the ETA ecosystem. And today, it's very much on the radar of people on... In PE, investment banking, consulting, even the military. There are podcasts and... Like like yours and platforms like searchfunder.com, books. It's just the ecosystem around ETA is dramatically different. I could go on and on. There's the financing availability. Very few lenders would lend in to ETA acquisitions back in 2010, 2011, 2012. Now that there are many banks with entire search fund lending teams, equity investors were few and far between. There was a small club of investors that were affectionately known as the search fund mafia back then. Now there's a much larger group of investors and quite a number of funds, including ours, Footbridge. So it's it's really transformed. It's wonderful to see. It has some implications around competition, but it's really transformed in in ways that I don't think anybody could have imagined back in the day. Mhmm.
00:06:40 · Mikk
[00:06:40] S0: And when you started, how was the fundraising scene you covered? Like, can you have some specific stats about, like, financing availability? But I think over the last fifteen years, the people who are... Who have made the decision going down this route, they've been just educating the investors as well. So how was it back then when you started when it comes to actually raising raising capital, raising debt to go and acquire a business?
00:07:09 · Greg Geronemus
[00:07:09] S1: Yeah. It was it was very different. I mean, you had to... We... You know, there were a few known quantities of investors that had been investing in search for a long time. You know, a firm like Pacific Lake Partners, you know, names like Kent Weaver. And, There were folks that had been in the ecosystem for a long time, and many others, those are just to name a few. But it was a small list of people. And in our case, went not only to many of those folks, but we also went outside of the search ecosystem. And to your point, it was a process of education. So we had to explain what the heck this model was, how it had performed historically, sharing the Stanford study, which had some data points far fewer than there are today, and the while also educating the potential investors on the deal. So it was a it was a much more difficult task. You had to explain the concept and explain the deal simultaneously as opposed to today, know, so many... There are so many potential equity partners. You certainly don't have to explain the model. You're... All you're doing is just selling, you know, explaining and getting people excited about the deal. I remember the debt process and when we were trying to raise debt in 02/2013, that was particularly difficult. And my business partner David did an amazing job, including leading the charge on the debt capital raise as my wife and I took our honeymoon to the South Of France. But he... I can't tell you how many. We probably talked to 50 different lenders, and we weren't asking for much debt whatsoever. We had a large seller note for about half the transaction, which was fantastic. Happy to get into that at a future episode. But raising debt was painful. We weren't asking for much, but there were just so few groups that were familiar with this search fund concept. And many of them just said, yeah. We're, you know, interesting asset, but this is not a this is construct that we would consider.
00:09:37 · Mikk
[00:09:37] S0: Despite the great growth we've been going through, I think like yourself, what you do on day to day basis and probably many people you discuss ideas with, we are in still in this small bubble, like not all the people know that and and think of buying a business. So I think still there is a lot to go. But what are your thoughts when it comes to the tailwinds and tailwinds changing in a way that back then maybe you've... You first had to educate the investor, educate the business owner to sell the business. Today, the business owner is just a a great business. They're just getting so many inbound call for potential searches from from people wanting to buy a business. So I believe the... Again, you still have to be tough, but tough in a way that there is now more competition and not so much about educating the investor. So in order to get the deal done, you still need to be tough. This hasn't changed overall.
00:10:40 · Greg Geronemus
[00:10:40] S1: No, it hasn't changed. And I think there's a lot of people talk about how search is harder today or it's dramatically harder today. I wanna be clear first off that search has always been hard. It is entrepreneurship through acquisition. Entrepreneurship is hard of any variety. You know, could you argue it's not as hard as going zero to one? I think that's fair, and I think the stats prove that out. But is it is it incredibly hard? Yes. Make no mistake about it. There are many reasons why... Or or or one... I guess there's... There are reason... Several reasons, but one central reason that it's harder today. And I probably concede that it is on net net hard, moderately harder today than it was, and that that all has to do with competition. But it's not just competition. I think one mistake people make, they they think about just competition from other searchers or ETA entrepreneurs. That's just part of it. It's competition from independent sponsors going down market. It's competition from private equity firms going down market through not only buying smaller platforms and and doing buy and bills themselves, but also, you know, doing aggressive, you know, aggressive m and a at... For smaller for smaller tuck ins. So the the competition has just increased meaningfully. But there are... You know, in addition to capital being... You know, there are many reasons why it's easier today. In addition to access to capital, which we've talked about, there's there's so much content information out there that people can draw upon in terms of best practices. So, you know, lots of great podcasts, yours included, where people can learn the tips and tricks of the trade. That did not exist back then. There are there are books. There are, you know, there there are literal playbooks that people can borrow, copy, modify. And I don't think enough is discussed about or... About just the... Some of the really powerful sourcing tools, which are getting better and better by the day with the help of our friends in the AI world, what you can do to identify companies to reach out to them, nurture at leads at scale, and really build fantastic funnel, that is so much more powerful and makes a searcher's job that much easier today. All of that said, I think on balance, it is a little bit harder than it used to be.
00:13:31 · Mikk
[00:13:31] S0: Still showing how hard it is. Thanks to this podcast and Twitter account, I've had had chance to talk so many people who who wanted to go and acquire a business. And even if I take super experienced guys, take private equity background, investment background... Investment banking background, a great education, they have... They've quitted their job. It it still took them two years despite having a great list of advisers. It took them two years to buy a great business. So it just shows how much mental toughness is required as well on top of all the experience, on top of all the know how on how to get the deal done.