Search Funds

Entrepreneur’s Corner

Search Funds 101

Thirty three percent of the funds were raised by a team rather than an i n d ivid ual s earc h e r. The q uest io n o f whether to have a partner was frequently discussed by the panel.

The Panel

G ro u sb ec k mo d e r a te d p a n el i st s Fowler, Rafael Somoza, gsb ’96; Barry Reynolds, gsb ’92; and John Moran, hbs.The panelists had a nice diversity of experience and were in different stages of their searches (from start to industry consolidation).

Fowler raised the money for his search fund, Montebello Capital, with a partner.The funding took less than five months and currently Montebello is in the heat of looking for an acquisition in the Western u.s. with $1–5 million ebitda parameters. Fowler found the n e t wo r k o f ot he r s e arc h f un d er s a helpful guide for advice and for investor names. When asked about the necessity of having private equity or deal experience, Fowler said that lack of such experience was not a disadvantage (he was previously a consultant).

Somoza’s fund, Quest Management Corporation,is focused on Puerto Rico. He talked about the difficulties of the search process when targets that looked attractive had either cooked books or the founders walked away at the last minute. Such is what happened to a deal in the outdoor advertising space, so he decided to found his own company in this space—an atypical result for a search fund. The investors were on board, and his company now has 22 employees.

Reynolds represented the investor p e rs p e c t ive. S e a rch f un d s ma ke u p 25 percent of his private equity fund, Housatonic Partners, which currently has seven portfolio companies that originated as search funds. One of their i nve s t m e n t s , A s u ri o n , i s by so me accounts the most successful search fund ever. Kevin Taweel, gsb ’92, and Jim Ellis, gsb ’93, bought Road Rescue in 1 99 5 . T he c o mp any, n ow ca ll ed Asurion, has grown 40 times and was named E&Y’s Entrepreneur...