Podcast Appearance: Badge Stone’s Journey

WSC Co-Founder and Partner Badge Stone was recently interviewed on Alex Bridgeman’s podcast Think Like an Owner. In the discussion, Badge describes his journey through search as an entrepreneur, operator and investor. Take a listen!

The Psychology of Search

“Search is 90 percent mental. The other half is physical.” -Yogi Berra (with some editorial liberty)

The great Yogi Berra may have initially been speaking of baseball when he uttered the quote above, but the principle applies equally to successfully operating a search fund.

Raw analytical horsepower, technical skills and knowledge are no doubt critical factors in executing a search and ultimately leading a high-performing company. We can think of these as equivalent to an athlete’s physical toolkit.

But the mental game—navigating the psychological challenges of search—is a crucial, albeit amorphous, success factor. In fact, if we analyze the most common searcher pitfalls, the root causes—at least in my estimation—are often related to challenges with managing our own psychology.

As a quick disclaimer: I am no psychologist and my classical training is limited to a few undergraduate courses and a shelf of pop-psych books. My observations are less academic, but based on my own experience as a founder/entrepreneur and now as an investor working closely with dozens of searchers and CEOs.

Let’s consider a few of those pitfalls, focused on the search phase.

Pitfall 1: Lacking a Bias to Action

The most successful searchers are thoughtful but tend to favor action. As concrete examples: they make quick decisions about disqualifying opportunities and avoid wasting time with non-sellers; they submit more LOIs than the less successful searchers; they jump into diligence quickly post-LOI and start sharing/circulating insights without waiting for all the data they eventually want to be provided.

Why might some searchers lack this bias to action? One reason: a lack of comfort with imperfection and a fear of making mistakes. Doing nothing—or more likely, spending more time analyzing or researching or discussing—can feel safer than making a choice that may turn out to be the wrong one. Getting comfortable with being uncomfortable and recognizing that search ultimately is all about runs scored (and you just need 1) and not batting average, is a helpful antidote.

Pitfall 2: Losing Objectivity

The best searchers are optimistic but conduct the diligence process with a healthy skepticism, an earnest desire to find truths—good and bad, and a willingness to walk away if diligence reveals unsolvable issues. Other searchers lose that objectivity and as they go through diligence it’s clear they are focused on seeing what they want to see and try to avoid looking in the closets most likely to contain the skeletons. Some investment memos read like sell-side investment bank pitches.

Why does this happen?

I’ll suggest a few possibilities:

(1) The possibility of failure for folks accustomed to uninterrupted strings of success can be so intolerable, so crushing to the ego, that there can be a temptation to close any deal—good or bad—just to avoid taking what feels like a loss and closing a search without an acquisition. Of course, over the long-term, being stuck in the wrong seat in the wrong business is far worse than not acquiring any company, but at least it delays that pain. Attaching a sense of personal self-worth too strongly to the outcome of a search can thus meaningfully drive this lack of objectivity.

(2) Confirmation biases are very real and we can be ingenious at finding plausible explanations for why what we want to believe is in fact the truth…or as the physicist Richad Feynman said, “You must not fool yourself, and you are the easiest person to fool.”

Pitfall 3: Failing to Try

The biggest pitfall for many happens at stage 0—failing to try to raise and manage a search fund because of excessive risk aversion. That’s not to say search is right for everyone. It’s clearly not. But sometimes we encounter folks who are energized by the idea and seem to possess the requisite toolkit, but they can’t quite get over the hump of launching because of fear—the fear of failing to acquire a company.

The data shows that individuals who launch a search but fail to acquire a company generally find wonderful roles and build terrific careers. Failing is a distinct possibility, but also highly recoverable over the long arc of a career, with downside further mitigated by some compensation paid during the search process. However, there’s a non-financial component to the fear of failure that doesn’t answer to facts and logic. Conquering those negative thoughts is the first major milestone for searchers.


Making observations on common pitfalls and their phycological underpinnings is easy. As Mr. Berra once said, “You can observe a lot just by watching.”

The hard part of course is in the execution.

How to Raise a Search Fund

The team at WSC recently gave a presentation to a group of business school students contemplating raising search funds. We thought we’d “open source” the best practices we shared, based on our experiences backing 100+ search funds and meeting many hundreds more. We hope the search community finds these 9 best practices helpful.

  1. Be certain you want to search.
    • Remember this is a 7+ year journey.
    • Call 20+ active searchers, former searchers and operating CEOs. You can find these through the portfolio section of search investor websites.
    • Talk to all the stakeholders in your life (i.e., partners/family) and be explicit about tradeoffs, sacrifices and boundaries. Make sure the “whole team” is bought in and aligned. Your emotional support network will be critical during this process.
  2. Get the right experience.
    • Intern both for a search fund during the year and an operating company over the summer if possible.
    • This will help you validate if search is for you, build skills and signal commitment to investors.
    • Think about your gaps in the toolkit needed to be a successful searcher/operator and prioritize experiences that fill those. (i.e., focus on cold outreach and marketing if your modeling skills are already well-honed).
    • Investors can help you find these internships (see WSC’s On-Deck program).
  3. Cultivate investor relationships early.
    • It’s helpful to have one or two particularly “friendly” search investors who agree to provide advice and comments on your PPM while it’s still in draft form.
    • You do not need to have your search strategy buttoned up or even know if you want to search when you initiate these conversations, but do have your personal story practiced.
  4. Be thoughtful about timing your go-to-market.
    • Most common time to come to market for MBA grads is Q4/Q1.
    • No “rule” on when to launch, but it can be helpful to be at the front of that cycle before investors fill their targeted cohort sizes.
  5. Write a strong PPM that satisfies all the “table stakes” items but tells your unique personal story.
    • Emphasize your personal/professional story and include it near the front of your PPM. Write in your own voice and avoid jargon. Think about how you want investors to “pitch” you to their partners when they give the 20 second blurb on your background.
    • Include a robust financial returns model and an appendix to show your work. Particularly for searchers without banking/financing experience, this is an important signal to investors (even though the model itself is highly illustrative).
    • Budget appropriately. Market for solo is ~$400K-$500K and market for pair is ~$700K-$800K.
  6. Don’t reinvent the wheel with your docs and terms.
    • These terms became standard over decades of iteration between search entrepreneurs and investors and are optimized for driving alignment while avoiding unintended consequences.
    • Use a lawyer who is experienced in the ETA/search fund community.
  7. Prepare for the interview holistically.
    • These will feel more like executive officer interviews than “pitches” for your search fund.
    • Be prepared to speak about yourself, your motivations for search, strengths/weaknesses, etc.
    • It is critical to nail your personal story—practice this. Connect the dots in your life in a way that is coherent, shows progress and explains why search is right for you.
    • If you are a partnered search, have a plan for how to handle “jump ball questions.” I.e., does one person always go first or handle certain types of questions (particularly challenging in video conferences).
  8. Choose investors wisely and enlist their help in the fundraising process.
    • Treat interviews like a bidirectional information gathering process. Ask investors the nature of their involvement in the search and operating phase.
    • Ask for referrals and warm introductions to other investors. Put your investors to work.
    • This is a shared ownership model and you should expect contribution from all members of your cap table.
  9. Enjoy the journey!
    • There are ups and downs, but this is an extraordinarily exciting career path.
    • You get to be an entrepreneur, an investor and a CEO, while collaborating with a tight-knit, supportive community of investors and advisors motivated by more than financial returns.
    • Treat people well, play the long-game and have fun!