Search Funds are an investment vehicle for entrepreneurs which provides them with the means to acquire and scale an established SME, rather than build a start-up business from scratch. 

This investment model has been growing in popularity and a record number of Search Funds were raised between 2013 and 2019 according to IESE’s International Search Funds 2020 report. Search Funds offer an exciting alternative asset class and have the potential to provide higher returns, with lower risk.

In this paper we will be interviewing two searchers, Marc Desmond and Carlos Oehling from Axias Partners, to discuss Search Funds from the entrepreneur’s perspective, and how Moonbase Capital is supporting them throughout the process.

Hi Marc! So what first attracted you to the Search Fund model? 

Carlos and I come from families of entrepreneurs and we knew from a young age that we wanted to follow this path and become entrepreneurs as well. Our parents and grandparents had started companies from scratch and we always assumed that we would have to do the same. 

However, we discovered that there are other ways to become an entrepreneur when we learned about Search Funds while studying for our MBAs at INSEAD. We immediately fell in love with the model! We believe that a Search Fund is a faster and more efficient way to become the CEO of a company. 

Search Funds allow entrepreneurs to take control of an established business with a fantastic track record and a great team, plus they receive support from a group of experienced investors. It’s the perfect breeding ground for entrepreneurs to succeed – starting a Search Fund was a no-brainer for us!

So when did the search start and where are you in the process, Carlos? 

Our Search Fund journey started in November 2020 when we began researching and connecting with other Search Fund entrepreneurs and investors.

We raised funds from roughly 15 investors between March and July 2021 and then started searching for a company in September 2021. 

Since September, we have been building a pipeline of potential companies. We have identified a potential target and we are about to make them an offer via a Letter of Intent.

However, as deals can fall through at any time, we will continue to look for interesting opportunities.

And what are your criteria when searching for a company, Marc?

We start by applying financial filters to our research such as sales, EBITDA, debt, etc. to narrow down our list of potential companies.

Our in-house analyst helps us select companies that are aligned with our financial criteria and we then look at other things that are not as tangible. This may include the sector, the cyclicality of the company, the owner’s background and experience, and so on. 

We have to be very selective because we don’t have the time to contact thousands of companies. If we see potential, then we will reach out to the company and always try to meet with the owner in person if possible.

Currently, we are only looking for companies based in Spain. 

What’s the biggest challenge you’ve had to deal with? 

We have faced two main challenges when speaking to the owners of companies.

Firstly, it’s not always easy to explain to them who we are and what we do as the Search Fund model is not as established as other asset classes like Private Equity. We have found that many business owners are not familiar with the concept. 

The second challenge is that it can be difficult to build trust and credibility with the owner when we don’t have much hands-on experience. We have to prove to a business owner that we are prepared and have the skills to take over their company and run it successfully. 

The best way to overcome this challenge is to always go into meetings prepared and ask the right questions. Business owners are very proud of what they have built so be respectful, listen carefully, and focus on making them like you. 

How valuable do you believe an advisor can be and do you think they help build credibility with owners? 

I think a good network of advisors can be extremely valuable, especially when we’re meeting with business owners.

Working with Moonbase Capital’s advisory board shows that we are backed by a team of experts with diverse industry experience. This helps with credibility massively and I believe this support will be critical to our success! 

Great! So how would you describe your search style, Carlos?

We first make contact with companies we are interested in by sending them a personalized letter and a small gift like some chocolate. The response rate for letters is usually quite low, so we follow this up with an email or call referring them to the letter.

Searchers use different search styles, but we’ve found that this approach has worked well for us and improved our response rate. 

Marc, what is the biggest lesson you take away from this process?

The biggest thing we’ve learnt is that you should keep building your pipeline even if you are very close to making an agreement or finalising a deal.

Never forget that a deal can fall through for many reasons right up until the last minute, so keep searching for companies throughout the process. You should always be prepared and have a backup plan in place if a deal fails. 

Finally, what role has Moonbase played in your search so far Carlos?

The Moonbase team have been very supportive and they are always available to give us advice.

It has been especially helpful having someone like Ibrahim from Moonbase Capital with a lot of experience in the industry look over our deals and they have brought us very good insights.

The Moonbase Capital partner’s experience managing companies will be extremely valuable when we acquire a company and start managing it in a few months!

Moonbase Capital is also local to us which is great because we can meet with them in person and always reach them when we need support. We are arranging monthly meetings with the team to update them on our progress and get feedback on the deals that we’re working on.

How can I get involved with Search Funds? 

Get in touch with Moonbase Capital if you would like to learn more about Search Funds and how to get started.

Our team has more than 50 years of experience and we are passionate about supporting entrepreneurs to succeed in acquiring and managing an SME.

You can also find lots of useful information and resources on our website.