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!