With the tides of global macroeconomic and investment realities across the world twisting, turning and changing directions (hello, SVB), we, at Moonbase Capital, take to heart that we are in the midst of tumultuous times and that the only way to safely transition to the other side of it, is by adjusting our sails and doing things differently. The world over is expecting further recessions, higher inflation, and rising interest rates, added to everything that has already happened in the past three years.
Europe has been no exception. Ever since the breakout of COVID-19 in 2020, the past three years have been a collection of force majeure events with their respective economic impact on almost every market on the continent. Between wars, recession fears, supply chain disruptions, rising interest rates, and soaring energy costs, the continent has had it rough – and it has quickly become evident that the old way of doing things does not necessarily fit the changing times.
As the wind changes, sails need to be adjusted to avoid capsizing. We’ve seen it happen across the board. Countries, like Germany, are moving away from solely depending on one market for their energy or industrial needs, and are looking South instead of East. The continent as a whole is drastically moving towards a green energy transition. The EU is concluding negotiations on a new free trade agreement with the MERCOSUR -states – a phenomenon that had been in the making for the past 20 years.
In the investment ecosystem, we have seen drastic changes in the past 2-3 years. Venture capital money is not as hot as it used to be, with a global VC squeeze making its way into 2023. The number of EU companies considering themselves financially constrained is on the rise, according to the 2022 European Investment Bank (EIB)Investment Survey. A combination of uncertainty and the lack of a skilled workforce is pressuring firms and investors alike. In short, investors are hungry for an alternative investment vehicle that can truly capture and leverage the opportunities in the market.
And that is exactly why we, at Moonbase Capital, decided to ride Europe’s upcoming search fund wave. We are three ex-CEOs & SME experts with a background in operations and business from two continents who dropped anchor in Barcelona. Amongst ourselves, we’ve tried it all: family businesses, management consulting, SMEs, and multinationals across Europe, Asia and Africa. And while we’ve learned and seen a lot, nothing convinced us quite as much as search funds.
We decided to launch a fund of search funds – or Search Fund Squared, as we like to call it. Through that fund, we work with exceptional entrepreneurs to acquire and lead great SMEs towards new horizons.
Our goal is clear: We want to work with around 40 search funds to identify 20-30 companies who boast between EUR 1-5 million in EBITDA with a track record of growth and revenue stability to drive their expansion, and ultimately, provide our investors with net returns of around 25%.
The great news: We just achieved a first close on our EUR 15-million Search Fund Squared fund, from family offices, CEOs and entrepreneurs out of the Middle East and Europe in a matter of 3 months.
How were we able to get all those investors on-board in such a short period of time? Well, firstly, higher, safer returns. The aggregate pre-tax returns for search fund investors in 2021 stood at 35.3% of IRR and 5.2x in ROI in the US.
Secondly, we provide our LPs with the option to get involved and help steer our acquisitions. Transparency is the name of the game. With their extensive experience, we want our LPs to add real value to our fund, our entrepreneurs and to ourselves as GPs. We want them to help shape the returns on their investments and enrich growth through their own experiences.
Bringing innovation to this new asset class is crucial in changing times, which is why we are working on the Search Fund Squared model. It was author Craig Lounsbrough who once said: “The best path is the one that’s not there because we are in the process of creating it.” We truly believe in this growing, emerging asset class and are happy to be on the forefront of innovation within it.
We’d love to hear from you if you’re interested to join us – reach us at contact@moonbasecapital.com
Stay tuned for our next post, where we dive into what ticks investors off about participating in big funds – and how Search Fund Squared decided to bring together the best of all investment methods.
