Accelerators and Solo-Sponsors

27.07.20 12:52 AM Comment(s) By searchfundsearcher

As we progressed through the late 2010s, these accelerator and solo-sponsor models started to gain traction. There are at least 7 or 8 such firms offering a new way to search. Each of them brings their own unique flavor to the field (with differences in everything from geographic focus, level of day-to-day support, size preference, return target, investor base, recruiting process, and cohort cohesiveness). So that I avoid posting any misinformation about these firms, this discussion will be kept to a high level and look only toward those firms of which I am most aware.

  

In the world of incubators and accelerators, the firms in the United States at the time of this article’s writing include SPUR, NextGen, SFA, and GTE. Their goals are to provide day-to-day support to Searchers without stepping on their toes. Instead of seeking out a dozen investors of varying financial and time commitments, a Searcher needs only to apply to an accelerator and go through a fairly normal job interview process. To those who pass muster, the firm provides a salary, benefits, training, tools, a peer group, and guidance from successful ex-Searchers or operators and investors, which can cut a lot of the financial, time, and emotional pains out of the normal process. Some of them specify which schools you must have attended; others are incredibly open and may not even require an MBA (though it'll help to be 40 and have significant operating experience). At this time, all of them are focused on a twist of the traditional model, meaning these are NOT accelerators of self-funded Searchers. That is a concept that several parties are still trying to figure out. and in the coming months and years, we may see at least 1 formal entity for it.

  

Sidenote: There are groups offering interesting takes on backing an individual and ensuring they receive self-funded economics, but they are not listed here at this time. They are potentially a great option for someone who would like to do a self-funded search without having to figure out how to invent the wheel or give up a majority stake of equity.

  

Each of the above listed accelerator organizations should decrease the time it takes to ramp up your search and increase your chance of closing. The exchange for this might be a lower salary or lower equity than a traditional search: no personal guarantees, no need to seek equity outside of the organization, etc. You can probably expect to have the potential to earn 15% to 25% of the stock (or phantom stock) in the business you acquire (in tranches) plus points in your cohort (after meeting certain requirements).

  

Search Fund Accelerator (SFA) is probably the best known of these accelerator options. It is based in Boston and New Orleans. Searchers must choose 1 of those locations, live there and share office space. In the past, SFA had 4 to 5 Searchers in each cohort, but that has expanded over time. SFA holds on-site training and regular day-to-day support in the office: This can be a bit more intimate than the support from a virtual group like Broadtree (explained below). Each Searcher used to act as an independent entity to the outside world (you don’t work for SFA publicly, you manage XYZ Capital), but in the last couple of years they have begun advertising their Searchers on their website. Each year there is a fund formed, which means that a group of Searchers needs SFA corporate approval to get capital and doesn’t need to convince a big group of investors. All deals are done through the same legal team, lending team, etc., so SFA can streamline the process and relationships, keep costs down, and improve the timelines of 3rd party work. In summary, you get to know your team and feel confident that they can get the job done.

  

Broadtree Partners (which is not hiring at the time of this writing), on the other hand, was “remote,” and each Searcher in a cohort (around 5 or 6 new Searchers per year) was expected to choose a different city in the US to work out of. There was technically some overlap allowed, but it was discouraged. You would find yourself working from home or being responsible for personally paying for an office, as Broadtree has no shared “HQ” to go to. Broadtree did hold on-site training with everybody together in 1 location every year, as well as a couple of get-togethers per year. After training, each Searcher presents as being part of Broadtree to the rest of the world: Rather than representing themselves as an individual, they were part of a firm. Searchers continued to receive regular support on a daily basis from their corporate team and cohort, regular meetings with prior cohorts who are still sourcing, and occasional virtual visits from Operators with stories to share. But there was nobody standing over their shoulders and not a lot of in-person interaction. Many services and relationships were pre-established and provided for Searchers, but they were still responsible for closing deals on their own by finding and pitching to the lender and outside investors for each deal. The investors a Searcher found could determine the make-up of a board and the specific terms on a deal-by-deal basis. Because of this there was no constant deal term for all Searchers.

  

As we continue toward the solo-sponsor based firms, we hit upon family offices like Halstatt Legacy Partners, Hunter Trust, groups like Double R Partners, and, on occasion, Private Equity (PE) firms such as Gemini Investors. These firms are a bit different from accelerators. The family offices in particular are more focused on long-term results. They'll back Searchers who are interested in more boring industries, and they have much less focus on high growth or high debt acquisitions. Instead, they focus more on finding a Searcher to partner with for decades in a boring and low-multiple company. When you acquire a company with a family office, they usually aren't thinking about an exit at all.

  

Solo-sponsor based firms still offer opportunities for you to cash out at some point and repeat the process or move on, or to get some kind of cash event similar to an exit down the road but continue operating. They offer significant salaries and incentives to Operators to keep you happy and running these businesses because they think well beyond 5 years for their portfolio. As such, the economics and salary of a solo-sponsor based firm is similar to a traditional experience.

  

Solo-sponsors like this are an in-between of traditional and accelerator in terms of day-to-day support. There is a staff who has experience with acquisitions and operating businesses. They are available to offer you help and advice. But they have other roles as well, and there isn't usually much comradery, assuming that there are multiple Searchers at the same time in the first place! Often, they only add 1 or 2 a year. You may meet your fellow Searchers (or predecessors who are now Operators) now and again, but you will likely have more touch points with a rep from the family office itself.

  

Both family offices and PE firms have lots of capital on hand and pre-established relationships with lenders, lawyers, and insurance providers. A lot of that DD is good to go. At times, their lenders will view the firms’ portfolios overall and give you a “global” rate rather than focusing exclusively on your deal—so you might get much better terms than most other Searchers. You may get lower rates, higher multiple, faster turnaround, etc. They can complete deals quickly once they agree to do it. Sometimes they aren't afraid to pay all cash or get a lender involved post-close, depending on the deal size.

  

It's still early days for both accelerator and solo-sponsor model search. Over time, we may well see them start to converge: either the experience itself or the investors behind the model. Or for traditional investors to get more involved with their Searchers. Whether or not that happens, these models appear to be the next step in the industry.

  

Share -