There’s a new investment concept emerging in Australia offering opportunities for talented entrepreneurs wanting to take the helm of a successful business, as well as investors looking to back a person rather than a deal.
Search funds are supported by a well-established community in the United States and Europe yet are largely unheard of within the Australian market.
Australian search fund advocates Ak Sabbagh and Lui Pangiarella believe the model has great potential here due to the large number of successful baby boomer businesses that require both succession in the coming years and/or a new injection of knowledge, enthusiasm, and funds to take them to the next level.
“We are spreading the word that this concept is a viable and exciting investment opportunity in Australia,” said Mr Sabbagh.
“At its core, a search fund takes successful and aspiring leaders into established operating businesses,” he said.
The search fund model involves:
- An entrepreneur aspiring to run their own business (the “searcher”) who raises initial capital from investors to fund a targeted search (which can take anywhere from 12 to 30 months).
- The searcher works with those investors over the course of their search and then seeks additional capital from them, and potentially others, for an acquisition once a suitable target is found.
- Following the acquisition, the searcher takes over as CEO and runs the acquired company with the objective of creating value for themselves and their investors.
Mr Sabbagh and Mr Pangiarella are introducing the model to the Australian investment market through their accelerator business, Second Squared.
This accelerator, unlike others, puts the development of the future business owner at the core of the process, not the development of a new app, product or start-up business.
“Buying an established, operating business that allows the entrepreneur to play to their strengths is less risky than a start-up,” said Mr Pangiarella.
“I’ve lost count of the number of times I’ve heard executives say they want greater control and ability to run their own business. There hasn’t been the mechanism to get into a business that will actually suit them,” he said.
Mr Pangiarella and Mr Sabbagh are proposing search funds, and the community or “eco-system” that supports them, as part of the solution.
“Search funds are unlike the start-up or technology-based accelerators or incubators. The majority of those start-ups simply don’t get off the ground or fail within the first three years,” said Mr Sabbagh.
Search funds have been operating in the US for over 30 years and have grown into Europe, Latin America, and Africa. The director of Stanford Graduate School of Business’ Centre for Entrepreneurial Studies, H. Irving Grousbeck, pioneered the investment model popular at the Harvard Business school and popularised through the MBA programs at Stanford University.
For further information visit Second Squared.
