In our series of Selling Search to Sceptics blogs we have explored that the EtA model is not for everyone, and that the search for investors begins with selling YOU before selling the model. What you bring and what you want isn’t just commercial either, you are wanting an ongoing relationship and cultural alignment. This means you are “buying” as much as you are “selling”. Getting clear on what YOU are looking for in your investor group profile is as essential to success as securing the funds you need.
Slow down to speed up!
As enthusiastic entrepreneurs, Searchers are passionate about the Search Fund Model and that can lead to a behaviour that puts the model before the value that they actually bring (i.e. the chariot before the thoroughbred).
Slow down. Be strategic and think through your investor search process carefully. Window shop before you buy! This is about building and managing relationships first, especially in your potential investor network. The investor who says ‘no’ today to your pitch in the search fund may say ‘yes’ once they get to know you better. They may also be a ‘yes’ at acquisition time. Create ways of staying connected and stay “in relationship” through your search and acquisition process.
Developing your network of potential investors before, during and after the ‘ask’ is essential to broadening your pool of opportunity. In a sceptical market, like Australia, with little understanding of the EtA model you will be regularly educating people on the concept. “Always be inquisitive and open to learning.” Says Greg Green. “A lot of the relationships I’ve built over time stem from just talking to people and saying, ‘hey, I’d love to learn how you did what you did.’ Tapping into the experiences and wisdom of successful people is a valuable way to get them involved with us and EtA without the need to ask if they are interested in investing at the start.”
Knowing that you are looking for investors who are keen to build a long-term relationship and invest capital over a longer time than usual means remaining patient with the whole process yourself. Finding Patient Capital requires patience. Greg explains “I recently began a conversation with what will become a good long-term relationship with a potential investor by taking the money off the table.
“I started the conversation by stating that I thought they were probably not going to invest (and why). So by not asking them for investment I was able to then share what I’m working on and that I would love to have a more in-depth conversation about it. They even said that they would probably be a ‘no’ (to the investment) but wanted to know more. I continue to have those conversations with them, and I still have my foot in that door. That potential investor has provided some valuable input and it’s one of those connections that I’ll continue to speak to and build relationship with over time.”
What’s your investor ‘mix’?
Search Fund investors are a unique breed. They are attracted to the same market that EtA Entrepreneurs are passionate about; they are patient with their capital, and many have a desire to share in and contribute to your journey. “Talking to an investor today, he said that while he doesn’t mind the prospect of a quick opportunistic exit, he loves to stay involved for a longer haul – involved maybe for 10 to 15 years. I think that’s something that that is pretty unique to EtA.” Says Nikita Gossain.
Alex Simmons continues, “When I was raising my Search Fund, I did so with a specific aim to assemble a mix of different backgrounds, different expertise, a mix between institutional and individual investors, people that actually run businesses or have done searches themselves. That brings a variety of skills to the table including people who bring a rigor to the process when you need it.”
Greg Green has been targeting investors who can “provide different levels of expertise, experience, relationships, network, all of those layers that I think are really important to this model. People who I can talk to on a weekly, fortnightly basis, all the way through to people that I can pick up the phone when needed and say, ‘hey, I’m struggling with X and I’d love to get your perspective or get connected to someone in that space…’”
Commercially, it is also important to identify investors in the ‘right deal’ for the ‘right investment amount.’ Nick Bamford explains that it is a bit like finding the ‘Goldilocks Zone’ of EtA investors. “What I’m looking for is to maximize the level of interest in the deal for the size of cheque that the investor writes. If the investment is too big for them, and they’re in with too much interest, then you might find over involvement from any one investor. It could jeopardise the whole balance in our model as the EtA Entrepreneur may then not have the space to serve all investors equally and to get on with growing the business.
“If the investment is too small, they could be the smartest person in the whole game, the most experience, but you’re not going to get the level of interest that you need to help solve some of the problems you will face in operating the business. So whilst that’s a very difficult one to engineer without knowing the size of the deal, you definitely want to make sure that you’ve got a good range of investors in there to begin with, so that when it comes to doing a deal, you’ll have investors with a high level of interest, but not too much.”
To summarise, communicating your value proposition as a Searcher in a sceptical market requires you to:
- Sell the value of YOU before you sell the EtA model. Why before What or How.
- Sell YOU as a benefit to the vendor as well as the investor. You are providing the management solution that most other buy-out models don’t have. Owners want someone who believes in their legacy. It’s more than a commercial deal. YOU represent the full package.
- Know what investors are looking for, and approach investors who are likely to have an interesting (i.e. be targeted in your approach).
- Be clear on your investor profile – what are YOU looking for in your investor base beyond just funding? What mentoring or experience do you want to add to you and your Search?
- Start early. Window shop and build long term relationships and networks across the investor community.
- Be patient and persistent. You are building relationships that will be with you for seven years, and hopefully much longer. You can’t expect that to happen overnight, but it won’t happen at all if you don’t stick to it.
- Listen & Learn from the feedback and wisdom you get from investors, whether they invest in your or not.
As Nick Bamford aptly puts it, “when approaching an investor or others in our sceptical market, turn the listening ears on. We have a great story to tell and we need to approach investors in a compelling and creative way using the ingredients of the mentoring side of it, the returns that search funds have historically given, and the compelling solution to the management transition problem that they’re not going to solve if they go the traditional route of private equity.”
Keen to learn more about Search Funds and Entrepreneurship through Acquisition in Australia? Contact us at firstname.lastname@example.org – we’d love to begin the conversation. Checkout our Resource Page too for the latest global research and information on Search Funds.