Krishan Arora is CEO & Founder at The Arora Project, a globally recognized leader in crowdfunding & scaling high-growth ventures.
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In the rapidly evolving world of entrepreneurship, we're seeing traditional models give way to innovative solutions that are redefining the path entrepreneurs can take. Several decades ago, if you wanted to launch a business, you had to either raise capital from investors, self-fund the project or get financial assistance from a bank in the form of debt. Most early-stage founders were too early to raise capital from investors, they did not have hundreds of thousands of dollars lying around to invest in a business, and they did not have collateral to provide a bank to secure a loan. So what options were left?
Equity crowdfunding and search funds are two innovative solutions that have been brought to the market to help bridge this gap. I have already written in depth about equity crowdfunding and how it is transforming the fundraising landscape for entrepreneurs. In this article, I will be covering the search fund model, which is a path for entrepreneurs to raise capital, acquire a business and create value for shareholders.
Instead of starting a business from scratch, search funds allow aspiring entrepreneurs to raise capital from search fund investors (investors who specifically invest in this industry). These investors back the entrepreneur's journey, providing the necessary resources (from capital to advisory) to first search for established and profitable businesses, and then acquire that business and become CEO. It's a fast-tracked way to own and operate a profitable business, with the end goal of growing the business and creating liquidity for shareholders.
Filling A Gap
When a business's founder transitions out, either due to retirement, new opportunities or other reasons, the business may face a critical juncture. This scenario often leaves successful businesses at risk of stagnation or even closure, as finding the right successor can be a daunting task.
In the U.S., there are more than 24 million family-owned businesses. A staggering 61% do not have a formal succession plan in place, leaving the majority of them at risk with an uncertain future.
Search funds address this problem head-on. They fill the gap left by businesses whose founders are transitioning out while serving as a way for aspiring entrepreneurs to grow a venture and generate profits without having to start a business from scratch.
Getting Started With Search Funds
If you are interested in going down this search fund path, there are a few key steps to take:
• First create an investment thesis/private placement memorandum (PPM). These are essentially the same thing; a PPM is just a formal document that highlights your investment thesis in detail. Which industry do you want to acquire a business in? Why would a business owner sell to you? What valuation would you give this target business? What is your value creation plan?
• Once you have a defined investment thesis/PPM, you can then create a target list of potential companies that fit your investment thesis. As a rule of thumb, your list should include thousands of potential companies. You can find information on these companies using sites like Statista, Quora, Reddit and SearchFunder.com, which is a community hub for search funders.
• Once you have your list of companies, then you can start pitching investors and funds who invest in this industry. You can find search fund investors on LinkedIn and other websites that are dedicated to this industry. The common takeaway I have heard is, "If you have a good deal and a coherent PPM, the money will come," so focus on your investment thesis and deal structure, then the capital should be easier to acquire.
Search Funds And Digital Marketing
Leveraging digital marketing techniques can play a pivotal role in capitalizing on the search fund trend, making the acquisition process easier and helping you achieve long-term success.
Finding A Business To Buy
In this connected digital age, data is king. When evaluating potential businesses to acquire, I recommend leveraging digital marketing analytics to assess the target company's online presence. You can assess its social media presence by looking at its engagement rates, for instance.
You also can look at the quality of content the company creates—both on social media and its website—and the online accolades it has earned from industry publications. This will give you a good sense of what a company is like.
This data-driven approach allows for well-informed decisions, ensuring that you invest in businesses with the most potential for growth and success.
Growing The Business
While the search fund model provides a solid foundation for entrepreneurs, the key to sustainable success lies in effectively scaling and marketing the acquired business. Digital marketing serves as the ultimate growth engine in this regard. By harnessing the power of online advertising, social media marketing, content creation and SEO, you can quickly grow your brand presence, attract new customers and drive revenue growth.
Digital marketing also plays a crucial role in enhancing customer experience. With a customer-centric approach, you can leverage technology to improve service delivery, personalize interactions and build brand loyalty. Through digital channels, you can gather valuable feedback, respond to customer needs promptly and tailor offerings to meet market demands effectively.
Final Thoughts
Search funds are a powerful and efficient way to become a successful business leader. By following the steps to acquire an existing business and leveraging digital marketing strategies, you can fast-track your growth and ensure long-term success in the competitive business world.
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