Moonbase Capital on the VC10x podcast
Ibrahim Abdel Rahim sat down with Prashant Choubey, host of VC10X, to explain what search funds are, how they differ from startups and venture capital, and how Moonbase Capital invests in and supports searchers.
He also shared his path from the family business to McKinsey, an MBA at INSEAD and Stanford, where a search fund course got him hooked, along with examples of companies Moonbase’s searchers have acquired and the criteria they look for.
Key takeaways
- Not a startup: the entrepreneur starts with the wish to be CEO, not an idea. Searchers buy established, “old school” B2B SMEs, often 30 years old with 50–60 employees and an owner without a successor, rather than unicorn candidates.
- A mix of VC and PE. Like VC, there is an entrepreneur-led model with small minority tickets spread across many companies. Like PE, the company already exists, so you can visit it and review its financials, and banks typically fund 50–80% of the purchase. In Ibrahim’s example, a €20M deal needs only €5–7M of equity.
- Two-step investment. Investors first back a search fund of around €500K (about €40K each) for roughly two years, then roughly €750K once a company is found. They aren’t obliged to invest in the acquisition, and if they don’t, the searcher repays the search capital plus a 50% markup. Around a third of searchers never find a company.
- Not unicorn returns, but a high success rate. Ibrahim is comfortable with a 30–50% IRR per deal. He cites Stanford’s 28–33% average IRR across the market and says around nine in ten search funds make money, so the portfolio returns more than an average VC portfolio would.
- Hands-on support, with the entrepreneur in the lead. Moonbase holds a monthly catch-up with each searcher, brings in specialist advisors from its 50-person advisory board, and takes board seats where it can add value, but it lets the entrepreneur run the business.