Self-funded search is for those who want to operate their own business. The important distinction here is that self-funded Searchers don’t aim to operate just any old business; they want to operate theirs. If you want to be an Owner-Operator and not just a highly-incentivized CEO, then this is the best route for you to go. The only alternative is to pick investment partners who are open to allowing you to buy them out over time or through a recap and side with you on major decisions along the way. While anybody starting a search fund might be an ‘entrepreneur’ by the classic Harvard description (known to be the greatest definition ever), this author chooses to reserve true EtA for the self-funded style. Entrepreneurs through Acquisition tend to be craftier about resources because they use their own money to finance sourcing and portions of due diligence. They often look at cheaper multiples, are open to buying smaller companies, install more innovative structures, and use varied methods of acquisition. They also have significantly more freedom in choosing what type of business to buy and where to go. You can have geographic constraints in a self-funded search!
Overall, self-funded search is a different type of work and a different kind of stress. It’s a bigger risk because by participating in a self-funded search, you may give up a salary, spend your savings, lever up, have to personally guarantee any loans you get, and have no official support from an experienced team. That being said, it isn’t too hard to find significant support from experienced advisers. While many will say that it is a lonely experience, that is at least partially because many neglect to build themselves a good support system. Plenty of people from all over the world of search are happy to help out, make recommendations to 3rd parties, speak on a regular basis, and share certain resources. In fact, there's a very strong community on Slack providing constant advice to fellow self-funded Searchers. All you have to do is ask. That’s part of what makes search such a unique and collaborative community. But if you don't ask for help or build your own peer group, then it won't happen for you, and you may consider the resulting experience to be lonely. Just remember that these days, there are mini-communities in Slack and Searchfunder, as well as in-person meetups in major cities, so you don’t have to go it alone.
In a future article, I'll dig into how EtA is possible without having much initial capital. There are excellent loan sources, equity sources, and acquisition structures out there, as well as cheap (but good) 3rd party resources that allow someone with enough savings to sustain them for 2 to 3 years and cover their diligence costs to acquire a multi-million dollar business and keep anywhere from 51% to 100% of the equity for themselves. In other words, in exchange for sourcing on one’s own dime, designing a good structure, operating, and lining up lawyers, accountants, insurers, and lenders, being willing to sign a personal guarantee, one can keep a majority of the equity and find investors for both equity capital and, in some cases, Due Diligence (DD) financing.
While many prior Searchers are happy to act as advisers, you have to build your own system from scratch. It's a bit like learning to build a fire. In a traditional search, these advisers will at least tell you where to find kindling. You have to seek the right advisers or go at it on your own. This can be a challenge, but also spurs innovations! This definitely isn't a model for the faint of heart.