15 minutes with… is a Moonbase Capital series that picks searchers’ brains on current market conditions, what challenges they are facing and the actual technicalities of what it takes to be a search fund entrepreneur.

Vagn Knudsen Salazar‘s professional story is nothing short of remarkable. Educated in three countries, he has worked in finance, led a successful family business, served as the CEO of an e-commerce venture that exited for $120 million, and raised $32 million for a startup.

His career also includes a stint in venture capital before relocating to Spain, with his family, to raise KG Capital SL, a search fund we, Moonbase Capital, proudly support.

KG Capital targets mature businesses with proven models and recurring revenues. Their investment strategy is focused and discerning, avoiding project-based companies and highly capital-intensive sectors with long business cycles.

We caught up with Vagn to learn more about his story:

MC: So, we can start with you telling us a bit about yourself, your professional background, and your personal life.

Vagn: Sure, I’d be happy to. I grew up in Colombia and pursued my undergraduate studies at Babson College in the United States. After completing my degree, I returned to Colombia and spent a few years in investment banking. Following that, I ventured into entrepreneurship and started my own industrial services business.

Later, I pursued a master’s degree, studying at HEC in Paris and MIT in the United States. After completing my studies, I was hired by a German venture capital fund to be the CEO of a rapidly growing e-commerce company in Colombia, which was later sold to Falabella, a Chilean retailer, for about 120 million dollars. This company also secured the largest funding for a technology startup in Colombia at that time, raising 32 million dollars.

Subsequently, I managed an investor network in Colombia, sourcing deals for them. I then joined my family’s industrial business as CEO, leading a flexible packaging company. During my tenure, we grew the company’s annual revenue to eight million euros with a team of 100 employees.

After that, I represented a VC fund from the United States, helping them source deals and raise a second fund. I also did consulting for technology startups through my own business. Due to the deteriorating socio-political situation in Colombia, my family and I decided to move to Spain. There, I secured a role as the project manager for an artificial intelligence project.

While in Spain, I decided to raise KG Capital, the search fund I’m currently working on.

MC: Okay, all right, and you mentioned you left Colombia for socio-political reasons. Why did you choose Spain specifically, in terms of your career as a searcher? What opportunity did you see in Spain?

Vagn: Well, it’s important to note that our move to Spain wasn’t initially driven by my career as a searcher. We chose Spain because we love the country. It’s peaceful, offers great living standards, and has so much to offer. Safety was a major factor for us. Once we settled here, I decided to raise a search fund. Spain has a very healthy search fund ecosystem with many experienced investors, such as Moonbase Capital, who can add significant value. Additionally, Spain’s demographics are favorable, with many mature businesses that may need new ownership.

MC: What do you think is the best part about managing a company and helping it grow? What part of the process do you enjoy the most?

Vagn: I enjoy the intellectual challenge of figuring out what levers to pull to make a company grow, as I did with the fastest-growing e-commerce company in Colombia and with my family business, where we doubled sales in three years. It’s all about the challenge of both the intellectual and execution aspects of making it happen. That’s what I find most rewarding.

MC: You mentioned that you were representing a VC from the United States. That seems like quite a pivot, moving from VC to a search fund. What factors contributed to you favoring the search fund model over the VC model?

Vagn: That’s a very interesting question, and I’ll be honest. My experience in the VC world showed me that many startups become successful for reasons different from those anticipated by venture capitalists. There’s so much uncertainty around startups. The successful ones often succeed for unexpected reasons, making the process feel like playing roulette. Many business model pivots and changes occur, and the most successful companies in a portfolio are often not the ones expected to be.

While there is some science to venture capital investing, I found there was less rigor in many ways. At this point in my career, I want to reduce uncertainty. This is why I was drawn to investing in more mature companies with proven business models and recurring revenues, rather than startups that may or may not achieve product-market fit. That is not to say there is no uncertainty in search funds, I know of a couple of search funds that have recently decided to shut down without closing an acquisition, and a couple others that are zombie funds (do not shut down but do not seem very active either).

MC: You said the best part of your job is getting to know interesting companies and business owners, and the worst part is when a deal falls through. Could you take us on that roller coaster a bit? Can you elaborate on that?

Vagn:Absolutely. It’s crucial to keep an open mind and maintain a steady pipeline of potential deals because you can get very invested in a particular deal, only to have it fall through for reasons beyond your control. Balancing the effort between maintaining deal flow and focusing on closing deals is essential. You have to understand that, despite your best efforts, some deals might not close due to factors outside your influence.

MC:Tell us about your search strategy. How do you source your deal flow?

Vagn: I have a proprietary outreach strategy, and to a lesser extent, I contact brokers and boutique investment banks. I prefer to reach out directly to companies and engage with business owners and shareholders.

MC: When you reach out to them, how do you find information on these companies? What makes you interested in them?

Vagn: We start with initial screening by accessing publicly available databases. Our team of analysts filters these companies based on their past performance. Once we identify potential targets, we try to contact the main shareholders.

MC: In the initial screening, you mentioned looking at financials. What other criteria do you consider besides EBITDA or size?

Vagn: The most valuable information often comes from talking directly to shareholders and the management team. This interaction provides insights not publicly available, helping us understand the business’s potential and risks. We also focus on the general empathy and integrity of the people we interact with. Successful business relationships require collaboration and trust, so it’s important to work with people who share our values.

MC: Are there certain sectors you prefer, like service sectors, industry, or technology, due to their recurring revenue? Which sectors do you avoid?

Vagn: We tend to avoid very project-based companies, highly capital-intensive sectors like construction and engineering, commodities, and heavy industry. These sectors often involve long business cycles and significant capital requirements, which are less aligned with our investment strategy.

MC: Okay, and in terms of the impending recession, how do you think that affects the search model or what you’re trying to do, specifically?

Vagn: Well, it reinforces the importance of focusing on less cyclical businesses. Higher leverage will become more challenging during a recession. However, it might also present a good time to buy, as business owners could be more willing to sell rather than ride out the upcoming recession.

MC: Good point. Your pool may be widened as business owners might be more willing to sell now instead of facing the recession.

Vagn:Exactly. The current economic climate and the possibility of a recession might make selling a more attractive option for some business owners. The Spanish economy, however, seems to be doing quite well so far.

MC: So regarding geopolitical and economic trends, you mentioned not spending too much time thinking about future geopolitical issues, but you are concerned about the executive branch of a government tampering with the judicial branch. Tell us more.

Vagn: Yes, Spain is generally a very stable country, but there is a potential threat to checks and balances with the current political climate. Additionally, global tensions, such as those with China, are important to consider. For example, if a company relies heavily on Chinese manufacturing and enjoys certain margins or profitability because of it, we need to assess the risks if that sourcing becomes unavailable. We must consider how the business would be impacted and whether increased costs can be passed down the value chain.

MC: Thank you for your time and insights, Vagn!