Ep 54: Introducing Graeme Wallis and Traditional Vs Self Funded Search Funds
Nov 22, 2022
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Graeme Wallis, an aspiring entrepreneur passionate about ETA and the UK ecosystem, shares his insights on pursuing a traditional search fund. He explains how he discovered search funds and why the traditional route resonated with him. The conversation dives into the differences between traditional and self-funded search funds, emphasizing the importance of community support and the role of investor relationships. They also explore motivations behind business acquisitions and the strategic nuances specific to the UK market.
The traditional search fund model provides structured support for acquiring small businesses through investor capital, enhancing trust and collaboration during the search phase.
Successful searchers thrive in a supportive community that fosters networking and mentorship, vital for continuous learning throughout their journey in the traditional fund framework.
Choosing between traditional and self-funded search funds ultimately depends on individual goals, risk tolerance, and the desired level of control over acquisition processes.
Deep dives
Exploring the Traditional Search Fund Model
The traditional search fund model is a structured approach to acquiring small businesses, typically involving a searcher who raises capital from committed investors. It usually spans a period of 24 to 30 months, enabling the searcher to source and evaluate acquisition opportunities. Investors fund the operating expenses during this search phase, giving them the option to invest further during the acquisition phase if they are satisfied with the searcher's performance. This model is attractive because it combines the venture capital and private equity frameworks, allowing investors to support a searcher without a significant initial financial commitment.
Understanding Investor Motivation
Investors are motivated to back searchers for several reasons, notably the relatively low capital requirement during the search phase compared to the acquisition phase. By investing smaller amounts initially, they can evaluate the abilities of the searcher before committing larger sums for the business acquisition. This gradual involvement helps establish trust and allows investors to assess operational capabilities over a two-year period, making it a prudent strategy for both parties. Moreover, successful searchers can provide substantial returns on investment, enhancing the appeal of the traditional search fund model.
The Role of Community in the Search Process
A supportive community plays a crucial role in the success of searchers within the traditional fund framework. Networking opportunities and mentorship from seasoned entrepreneurs and investors foster a collaborative environment where knowledge and resources can be shared. Searchers are encouraged to engage with others who have experienced varied outcomes, which can lead to valuable insights and guidance throughout the process. This sense of community not only helps new searchers hone their skills but also encourages a culture of continuous learning and mutual support.
Comparing Traditional and Self-Funded Search Strategies
The choice between a traditional search fund and a self-funded search often hinges on an individual's background, risk appetite, and the degree of control desired. Traditional searchers benefit from investor backing, providing access to substantial capital and support while committing to operational roles post-acquisition. In contrast, self-funded searchers retain more equity ownership and flexibility, though they must also manage the risks associated with financing their own deals. Ultimately, the selection of one path over the other depends on personal goals and the ability to navigate varying levels of complexity in the acquisition process.
Navigating Seller Relationships
Building a strong relationship with sellers is essential for successful business acquisitions, particularly in the context of traditional search funds. A focus on transparency, trust, and aligning motivations can significantly influence transaction outcomes. Searchers must engage in open dialogue with sellers, addressing any concerns and demonstrating their commitment to preserving the legacy of the business. Establishing this rapport not only aids in negotiation but can also facilitate a smoother transition for the business and its stakeholders, ultimately leading to mutually beneficial partnerships.
This week we speak with Graeme Wallis who is embarking on his ETA journey by pursuing a traditional search fund. Graeme is passionate about ETA and the UK ecosystem, and he will be joining us on future episodes.
In the episode, Graeme shares how he leant about search funds, and why the traditional route appealed most to him, and then Paul and Graeme discuss the differences between traditional and self-funded search funds and the UK- specific nuances. Enjoy!
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