Business school grads are implementing an unconventional strategy to fast-track their way to becoming top entrepreneurs. Although this method is different, it is not exactly new either. This article examines what it is, how it works, and why it’s suddenly so popular.
A Trend Four Decades in the Making
Before you knock these up-and-coming entrepreneurs for taking the quick route to the top, let’s look at it closer…
THE APPROACH THEY’RE USING IS CALLED A “SEARCH FUND MODEL,” AND WAS DEVELOPED AT HARVARD BUSINESS SCHOOL IN 1984.
Via The New York Times
Search funds are similar to raising money for deals in multifamily real estate investing.
Basically, future top entrepreneurs raise capital from various sources. Then, they “search” for an existing, profitable business to take over as owners or CEOs.
This YouTube video from the creator, VCPete, gives a great overview of how it works.
Despite being used successfully since its inception, in recent years $800 million was invested in search funds. (Data from Stanford Graduate School of Business.)
So, why the sudden hype?
Why More Top Entrepreneurs Are Becoming “Searchers”
There are several reasons why more businesspeople are looking to search funds to make their bones in the marketplace.
First and foremost, there is simply more awareness. Go to any major business school in the U.S. and you will find at least one class on the topic.
Next, venture capital funding and hiring overall have gone down as these students graduate. As such, starting one’s own company or being hired at a major firm is less likely.
Last but not least — and most important to any top entrepreneur — the ROI is higher with search funds than with private equity…
Top Entrepreneurs Working Harder for Higher Returns
To be exact, search funds have a 35% ROI versus 15% with private equity.
However, there is more work involved. And, this generation of executives is willing to take on the challenge…
These inexperienced businesspeople have to present themselves well to investors, sell to owners, and be willing to wait for “the one.”
Nonetheless, it is better to get rich for sure than not at all. And with all these success stories coming in, this may be the way forward.
Be Great,
GCTV Staff
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