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My name's Coley Andrews, GSB class of 2009.
My partner and I started a firm called Pacific Leg Partners, and
all we do are invest in and support search fund entrepreneurs.
The search fund model has it's roots here at Stanford, and
fortunately it's a very fast growing part of the little entrepreneurial universe.
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The search fund model is really entrepreneurship through acquisition.
It's an opportunity for individuals who want to be their own boss, but
aren't necessarily a start up person.
To raise a little bit of walking around money,
to conduct a thoughtful two year search, to find a small business to buy.
Usually it's from an owner or someone in their 60's or 70's who wants to retire,
and doesn't have a son or daughter that they either want to hand the business to,
or would like to take over the business.
And it provides an opportunity for a recent MBA graduate to step into
the leadership role, and become the CEO of a small, profitable and growing company.
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We believe in backing smarts and hustle, not experience.
And the way we get around the experience is by focusing on buying a company
that has very strong characteristics, it's very healthy,
it's unlikely to be broken, unlikely to be run into the ground
by a 30 year old who's never run a business before.
And when you have those ingredients at the company level, and you layer in on top of
that, somebody who's inexperienced, but well educated, has a lot of hustle and
drive, has turned down attractive offers to go work at other big companies,
because she or he wants to be in business for themselves.
You really can create an environment where a lot of magical things can happen.
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Some people just say, you know what, I have to be passionate about the idea and
a product that I want to create, and therefore I'm going to go start my own
business, and that's just a certain type of personality.
There are those out there though who'll say, I'm not really that concerned too
much about the product, the passion is I just love the idea of managing.
I want to be in charge, I want to make decisions,
I want disproportion of responsibility early in my career.
Those are the folks that end up going the search fund path not necessarily
the start up path.
There's also a risk difference the odds of success in the search fund world
are materially higher than starting your own business.
They come in two phases, one you raise money to go out and find a company, and
you have about a 75% chance during a two year period, of actually finding and
buying a company.
Thereafter, once you buy the company you have about a two-thirds chance,
67% chance, that you're actually going to be successful and make money.
And there are investors out there that have skewed the odds on both of those
situations farther out to the right, to the positive.
So when you walk it all through, you have a greater than a 50%
chance of being successful, becoming a CEO, building a company and
having a financial outcome, and a life experience outcome that you want.
That's very different that the startup risk where it's much more boom or bust.
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What we're looking for when we find a new entrepreneur or
a new entrepreneur reaches out to us is really two things.
One, the strategy that they're going to employee to look for a company to buy, and
the type of company that they want to buy.
So that gets to my earlier point about hey, buying a good business and
a good industry increases your odds of success.
So if they're focused on that, that's great, check the box.
Then it gets to the harder stuff, which is the softer side of the individual.
Why do they want to do this?
Have they turned down other attractive offers?
Are they really demonstrating commitment to this path to being their own boss?
The search fund model is predicated on taking somebody with high potential, and
surrounding them with people that can help him or her succeed.
If they're willing to listen and
take advice from those who have gone down the path before them and
avoid mistakes they otherwise might make, that's a good sign.
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We often get that question.
Oh my gosh, you put a 30 year old in charge of a company on day one.
Doesn't everybody flee for the exits?
And the answer is no.
These are small businesses.
The employees, it's important for them.
It's their job.
They want to stay there.
And obviously, you're trying to minimize as much change as possible.
Particularly in the first year.
So the transition is really, do nothing.
Just listen.
Learn.
Make sure you're buying a business that is going to continue to move
forward even though you have this management change going on.
Then what happens is you wake up 12 or 18 months later, and the entrepreneur knows
an enormous amount, if not more about the business and the industry.
And the board that's been working closely with the entrepreneur understands things
much better.
And you can begin to slowly start to make changes to build out a sales force and
begin to attack a different part of the market that you weren't doing before.
Bring in some senior leaders to hopefully grow and scale.
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For the investor it's not a lot of money upfront,
to run risks in a high potential individual.
So we're investing 30, 40, $50,000 for that entrepreneur to have two
years of runway to go out there and find that business okay, and
I know that 75% of the time I'm going to have an option
to invest more money into the company that they actually find and that's why I exist.
Is to invest larger amounts into the business on behalf of our LPs.
So you skew the risk materially and have, on the small dollar amount, there's
some chance you're going to lose that, but 75 out of a 100 is still pretty good.
And then you have a chance to decide whether or not you want to invest a lot
more money once you have something known, which is a known business.
A known history of profits and growth, a known industry, and
an entrepreneur that you've been working with for 18-24 months,
that you've gotten to know a lot better than you did back at the beginning.
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Every day, you're waking up, and it's a new battle everyday,
to find somebody who will actually talk to you.
Search fund entrepreneurs over the life of their two year search,
will reach out to thousands of companies.
They'll have hundreds of conversations,
hopefully hundreds of in-person meetings but maybe not even that,
tens of in person meetings to have a chance to buy one company.
So it takes an enormous amount of inner strength and conviction to wake up every
morning knowing that 90% of your day is going to be rejection, to have a chance
at the end to achieve your goal which is to become a CEO when you're 30 or
31 years old.
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1995 there were two or three search funds raised roughly that year, plus or
minus a year or two, in 2005 it was more like ten or 12.
And in 2015, there'll be over 50 search funds that have come out and raised.
So it is clearly now gotten to a place where
entrepreneurs who want to be their own boss, but they're not a startup person,
know that it's a viable path to achieving their goal.
And so therefore,
it's a super exciting time to be involved in the search fund community.
And if you just think about the number of businesses out there that are owned by
individuals in their 60's and 70's, the baby boomer generation,
they have to find something to do with their primary asset.
And a lot of them love the idea of selling their business to a younger version of
themself, which is the search fund entrepreneur.
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