"Plenty of M.B.A.s finish business school with a hot startup pitch for investors. The latest breed of student-entrepreneur is skipping the startup part and pitching themselves as the investment.
Consider the model a SPAC of sorts -- akin to the stock-market trend in which a special-purpose acquisition, or "blank-check," company raises money and lists its shares, then finds a private business with which to merge. In this case, the investment vehicle is a fund for a newly minted M.B.A. graduate. The M.B.A. uses the money to search for a privately held, under-the-radar business and run it as chief executive and part owner.
These so-called search funds came on the business-school scene decades ago, but they have taken off in the pandemic years as investors -- awash in capital -- look for promising places to put it.
Arielle Lawrence, a student at MIT's Sloan School of Management who plans to search for an acquisition this year, came to business school with a corporate-finance and private-equity background. Her parents asked why she was rejecting a more stable career.
"The reality is, there's a risk and a choice that every entrepreneur makes," she said.
Most M.B.A. searchers hailed until recently from Harvard and Stanford universities, whose M.B.A. programs supported them with relevant coursework and in-the-know professors. Now, more schools and students are getting in on the action.
According to Stanford's Graduate School of Business, there were 51 new search funds in 2019, then a record. Its preliminary numbers show at least 70 in 2020. It estimates more launched in 2021.
Business schools see search funds as a way to compete with other programs on entrepreneurship. The returns have been good enough to entice investors, who after the search often finance the acquisition. A Stanford study of nearly 400 search funds through 2019 found three-quarters of companies acquired by searchers yielded a positive return for investors. Of those, 69% delivered at least double the return on investment.
The money often comes from family offices and institutional investors, as well as friends and relatives or high net-worth individual investors, said Sara Heston, the associate director of Stanford's search-fund project.
For M.B.A.s, the search-fund model is a way to become a CEO and business owner soon after graduation, without starting a business from scratch. But the path can be challenging. Identifying a business means cold calls to potential sellers and many rejections. About a third of searches have ended without an acquisition. Searchers miss out on campus recruiting.
The companies that M.B.A. searchers target aren't flashy startups or well-known brands. Many are family firms without a succession plan or companies too small to attract typical investors. The searchers typically hold the businesses for six to 10 years, sometimes selling to private equity. Recently acquired companies operate in insurance sales, security, software services, pest abatement and construction, Stanford said.
Investors said they know searchers are often inexperienced, so the businesses they target must be in growing markets and have strong recurring revenue.
That way, "even if these new CEOs make mistakes and screw up -- which we expect them to do, they're new CEOs -- they can't screw things up that badly," said Sara Rosenthal, a partner at TTCER Partners, which primarily invests in search funds." [1]
1. M.B.A.s Market Selves as SPACs
Ellis, Lindsay.
Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 21 Mar 2022: A.16.
Komentarų nėra:
Rašyti komentarą