Buyers and Builders
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.
00:14:13 · Greg Geronemus
[00:14:13] S1: There's no question. Mental toughness, also just sheer hustle and willingness to grind. Think a lot of people talk about the two years that it often takes to buy a business, sometimes more. A lot of people also talk about the falling acquisition rates, especially in traditional search where I think the latest Stanford study had 57% of of traditional searchers acquiring businesses. My guess is when this 2026 study comes out, that may dip below 50%. I have no inside information, but that wouldn't surprise me at all. A lot of people harp on those numbers, and I think there is some nuance that's lost that's that's not simply a reflection of it being harder and more competitive. It's also a function, I think, on on average, the hustle factor, the grit, the the willingness to grind, that has also diminished over the last fifteen years. When when you were going into search in the two thousands, early two thousand tens, I mean, certainly in the in the eighties and nineties, you had to have... It was so hard to even... To learn about search, to raise the capital. It was such a niche. There was very little data out there, very little information. You had to want it so badly that anybody going down the path was... They really viewed search as a calling, not just simply a career path. And as it's become so much more popular at MBA programs, consulting firms, banks, private equity firms, there are a lot of people that view search as just another career option. Maybe I'll take a bet on myself. If it doesn't work out, I'll go to business school. If it doesn't work out, I'll go back to private equity or consulting or banking or an operating role. And their heart isn't in it in the same way. It's a career path, not a calling. Whereas I think across the board, ten, fifteen years ago, twenty, thirty years ago, when it was this sort of micro micro niche, it was always a true calling. And and so I I think you have think that you have people that where their heart's not in in the same way, and that's a big driver. It's sort of an underemphasized driver of the acquisition rates falling.
00:16:54 · Mikk, Greg Geronemus
[00:16:54] S0: Talking about how hard it was in early two thousands, I had a podcast guest, Mark Sinatra, and he acquired a business in early two thousands. He got seriously affected by the two thousand eight crisis, and he was just cracking jokes on the podcast that he lost his hair because of that. Because it was so hard. He was alone in this, but he survived. Yeah. But it was just so hard, and it's... I'm just taking this joke from from from himself. [00:17:23] S1: Why? We we operated from 2013 to 2017, so I was able to thankfully keep my keep my hair. [00:17:30] S0: Mhmm. The education part. Let's talk about the the overall impact of the Harvard ETA course. Some time ago, it was a very popular episode I did. It was just a solar research on Royce and Rick, and they've been probably influenced more acquisition entrepreneurs than almost anyone else. But then during the pre call, you said you are very involved in this as well. Can you maybe share a bit like how you become involved and how has it been? And then let's go more into the details of the real impact of this on the market.