WEBVTT
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the big question is this, how are entrepreneurs who aren't scaling tech startups or building lifestyle businesses from scratch doing it?
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How do acquisition entrepreneurs find businesses, buy them, and then create generational wealth while taking on less risk?
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Welcome to Search Funded, the entrepreneurship through acquisition podcast.
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I'm your host, Nick Law.
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I'm here today with Somal Jerry Wallace.
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Somal is the founder of Fedafund.
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Fedafund is a search fund investor.
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And what's really interesting about Somal is he graduated from undergrad at Wharton just back in 2014.
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Then in 2022, just eight years later, he launched Fedafund.
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So clearly a very precocious guy getting started on the search fund investing game a lot sooner than others.
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He did spend three years at Trilogy, one of the largest search fund investors, but would love to hear more about your story and maybe a good place to start would just be where you got the inspiration to start your own search fund Yeah, absolutely.
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And hey, thanks so much for having me.
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There's a kind of longer story I'm pleased to share at some point today about how I first heard about search funds and first got into this world.
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But the inspiration for the FEDA fund, which stands for Founder Focused Entrepreneurship Through Acquisition, is all the way back in 2016.
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And our space has changed so much from then when I first started search fund investing.
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And yet the challenges and frustrations that searchers tell me about today, so many of them are literally the same ones that I used to hear in 2016.
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And so in 2022 or end of 21, I was given the opportunity to launch the FETA fund, which I can talk about.
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And for me, it just felt like an interesting opportunity to try and launch a fund that served searchers in a slightly different way than a lot of the other funds out there.
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And that was pretty exciting to play a small role in helping to address some of those frustrations and challenges that searchers have been telling me about for almost a decade.
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to dig deeper there.
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How did that opportunity materialize?
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Yeah, absolutely.
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Maybe it makes sense for me to start the narrative all the way back at the beginning, and then I can get into that.
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Does that work, Nick?
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Definitely.
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Sure.
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So as you said, graduated from an undergrad in 2014.
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But funnily enough, my journey to the world of small businesses started well before that.
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When I was at Wharton, I found myself to working with something called the Wharton Small Business Development Center.
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And that work was pro bono consulting work for Philly area small businesses that needed the help.
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Most of the clients were sub $1 million of revenue.
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All the clients were sub $10 million of revenue.
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And what I found about myself at that time was that working with companies that size and working with entrepreneurs, and critically, this last one I think is the most important, working with businesses with mature operating models was deeply, not only kind of deeply interesting for me, but really personally meaningful.
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And kind of knew that about myself, started my career at Bain, talked to anyone who would listen about how I wanted to find a way to work with companies like that.
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And you know, a guy I worked with said, hey, you know, I just graduated from Harvard Business School, because at the time, you only really knew about search out of Harvard Business School and Stanford's Graduate School of Business.
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And then said, I really want to be a searcher.
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You might want to be a search fund investor.
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So I took a six month leave of absence from Bain, went to work with a search fund investor trilogy search partners, as you mentioned, and found that I absolutely loved the work.
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It was really exciting, deeply meaningful, and just fun to work with these high potential entrepreneurs.
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And one way I like to frame it sometimes is that everyone who gets into the space, the first or second thing they do is to read the Stanford study and everyone sees that eye-popping 32.1% annualized return.
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I don't think everyone thinks about the practical reality of that for investors like me.
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It's that the average company I get to work with is doubling its equity value every two and a half years.
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It's the average company I get to work with.
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Half of them are growing their companies even faster than that.
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And it's unbelievably exciting to work with businesses like that every day in and out, every day in and day out.
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So I think that's what really got me hooked.
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And I think you'll find every search fund investor has a story like that, the ah moment for them.
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Spent some time back at Bain and some time in private equity, came back to the space and was just kind of fortunate enough to become someone that searchers were really excited to partner with and had the pleasure of being on the main panel at the Southeastern ETA conference in 2021.
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And right after that, a family office approached me and said, hey, if you wanted to raise your own fund, we'd love to be your first capital in.
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And the reality about our space, and maybe we'll get the chance to talk about it, is it's not that hard these days to raise money to invest in search funds.
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The really hard part is having searchers out there who want to work with you, who will tell other people, hey, SOMO is a great person to partner with.
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promoters in this world and also just built that conviction that there was an opportunity to launch a fund that worked with searchers in a different way and help them with those pain points that still hadn't been addressed.
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And so, you know, decided to launch the Feta Fund.
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Yeah, that's clearly you're doing something right to make that progress that quickly.
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But I guess my question would be, what do you think that you offer that's different at Feta Fund from other investors?
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What's your value add that makes searchers excited to work with you as compared with I want to go back to the thing you just said.
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A lot of this, sometimes it's just better to be lucky than good.
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And I think one thing I feel very fortunate about or feel lucky is that it turns out if you build your career in an industry that's 7Xs in 10 years, right?
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Number of searchers went from about 10 to about 70 from 2012 to 2021.
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Really, really cool opportunities sprout up.
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And so I definitely feel lucky to have been in the right place at the right time.
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So that really was a big part of it.
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And in terms of how I work with searchers, the way I would describe it is this.
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It's generally not that difficult to get support once you've become a small business CEO.
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Once you have 2 million of EBITDA to pay for consultants and to get time with your investors when they've written a one and a half to $5 million check in your company, people will return your calls and there are resources available for you.
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I think a frustration I hear from searchers is that when you're in that search stage, that kind of founding just part of the name stage, it's a lot right?
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FETA, harder, Investors have written a $15,000 to $75,000 something check, like maybe that, a $100,000 check.
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You are out there sitting by yourself in a WeWork, sending emails all day, getting rejected, and don't really have the money to spend on help or support.
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And the really wild thing is that a lot of the same talk track and points that searchers used to bring up and tell me in 2016.
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I still hear today.
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And so the idea of the FETA fund is it's a specialist fund, just work with a handful of folks each year to kind of give them a highly custom bespoke experience.
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And it's laser focused on the 600 days of the search, kind of 30 days pre-capital call before you call your initial capital up to 30 days after you acquire.
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And for self-funded searchers, it's the same thing.
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We don't really have that same traditional fund structure.
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So I don't have a kind of similar period of time to talk about, but up from the early days and when you launch a self-funded search, well before you find an opportunity, right?
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I want to get to know folks really early into their search up through about 30 days post-close.
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And I spend, you know, 90% plus of my time helping searchers source diligence and ultimately acquire these companies.
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I believe the most valuable thing search investors can offer their searchers is their time.
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This isn't private equity.
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There isn't some playbook, right?
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That's part of the reason the returns and opportunities of our space have remained so great for almost 40 years.
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And I have found that searchers find it really helpful when you're available and kind of set up the time to be able to answer those Friday night calls and take the three hours to debrief in the middle of a conference to figure out how a searcher can spend the second day or third day of the conference and have it be more effective.
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I did that last night.
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So there's a lot of that type of stuff, getting really specific and in the weeds and being there and present for the sourcing and searching and diligencing stage, because that's the part that's the most frustrating.
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I even hear that from CEOs.
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They'll tell me, hey, it's been a little bit challenging to step into this business where I now have to manage 140 employees.
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Boy, this is way better than searching.
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How wild is that?
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For sure.
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So it seems that your focus is really on the search phase and other investors may be there for the operational or at the acquisition phase a bit more.
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one thing, well put it is, I just think in our world, for a lot of these larger investors, the burden we put on them is so hard.
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The expectation is that they're a one-stop shop, they help with everything.
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And it's really difficult to do that, right?
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And so naturally, they have to allocate their time or they allocate their capital.
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It's just a practical reality.
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I call the Fed of Fund a specialist investor because the Fed of Fund is not a lead investor.
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It's a medium-sized investor.
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And there's some power knowing that, hey, there's some number of leads, some bigger institutional players that are also in the cap table.
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And I know they can provide support with so much stuff.
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And if we take that as an assumption, as a given, it creates opportunities for other investors in the cap table to become specialists, help with one specific part of the journey.
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So I definitely want to echo and reinforce the value proposition of some of those other larger investors.
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They're really important.
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It's just the expectations on them and their responsibilities are a little bit different because they are that Sure.
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I think that's really interesting.
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As you mentioned, the number of searches, maybe 7X during the time you first got involved to 2021.
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I think by today, it's probably an even larger multiple than that.
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And clearly there's a need for And and more types of investors when the number of searches is increasing so quickly.
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I was curious how you decided that was sort of the specialty you wanted to focus on.
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Was it based on your own private experience that that's where you felt you added the most value or enjoyed most?
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Or is that just what you thought the greatest need was and you thought that you could tackle funny.
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One of the really fun things about being a search investor is that the people we work with are really smart and impressive.
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I'll just give an example on the traditional search side because it's a little easier of an anecdote.
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Anyone who can raise $600,000 for a traditional search fund from 12 very sophisticated, successful, smart individuals, that's an impressive person, right?
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You don't get to that place without being someone impressive and thoughtful and smart.
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And generally, if you ask folks like that, what are the parts of their life that are painful and frustrating?
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They'll tell you, right?
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They have a lot of great insight into the parts of this that are just not And so launching FedA, you know, again, I was given that opportunity and was thinking seriously about but it, I knew that it didn't make any sense to launch a fund.
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Like searchers don't need more sources of capital, right?
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There's well over a hundred search fund investors out there.
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That's not a differentiator.
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The idea, what I kind of landed on ultimately was I only wanted to do this if I saw an opportunity to provide something different, right?
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The world doesn't need another generic search fund investing fund.
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And so having those conversations and having that ah moment where I was like, oh my gosh, I feel like I'm in 2016.
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Literally some of the same phrases were exactly the same.
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That was kind of an ah, that there's probably an opportunity here.
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It's just going to be part of the next evolution of, of our space and, and just generally, right.
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I think it's a good idea to spend time where people feel frustrated and challenged.
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So that's like a nice way to get to spend your time.
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You know, I'd been in the space and done a fair number of things where I had experience doing that as well.
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And just insights I could leverage from the 50 plus searchers I've worked with since 2016.
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So was a place where I knew and could hear from searchers.
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They were looking for support, wanted more support.
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And it did nicely dovetail with some of that experience I built having been in the space or close to the space for so long.
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Sure.
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You've mentioned that your goal is to help a thousand entrepreneurs acquire businesses in your lifetime, I guess.
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Can you talk about where that mission came from and how at it.
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Yeah.
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I guess I would put it this way.
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Look, it's cool to talk about deals, right?
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Who doesn't have a nice time thinking about investing millions of dollars in investment opportunity that has big potential and hard, amorphous problem?
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That's really fun and exciting to talk about.
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But what got me into this, the thing that I really love about working with searchers, and the thing I loved all the way back in the early 2010s working with small businesses is it's so personal, right?
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These aren't companies with tens of thousands of employees.
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It's like 40 typically, right?
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And impact is measured not in terms of gross dollars created, but the impact on the lives of specific people of names, you know?
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You can say, hey, you know, pushing increasing pay for our workers who make minimum wage.
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You know, yeah, it's smart for the business so we can attract great talent and retain people.
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But like, think about what it's going to mean for Elizabeth and Jonathan and Frank and whoever else, right?
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How fun is that?
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And so I think framing what I really want to do over the next 30, 40 plus years as a search fund investor, not in the context of doing a thousand deals or generating a billion dollars of equity value, but from the point of view of the specific human beings I want to work with, I think it just better captured what is why I'm so passionate about, about search and working with searchers.
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It's really about the people.
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And yeah, you know, the company growth stories are fun and exciting, but also can't even imagine how wild it is for me to get to know someone, you know, their first year of business school, and they're trying to decide if they want to go back and take their private equity VP offer or whatever, right?
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And versus that versus doing a search, and then, you know, five or seven years later, you know, they might have successfully exited and taken home $25 million.
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Like the velocity of the stories just so happened so fast.
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And that's a part of it too, getting the chance to be along for that journey, not just for the 50 plus I've worked with so far, but for another 950.
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Definitely.
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Yeah.
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I think that's why either on the search side or investment side, it's a very exciting option compared to a lot of the other things you could be doing with your time.
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So if you want to impact people's lives, why not work with traditional small businesses that are in communities across the country?
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Exactly.
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Maybe you could give me an example of one or two searches that you really enjoyed or the story was the most rewarding for you.
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yeah.
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I'm happy to do that.
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But there's like four or five different lenses we could talk about that.
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One would be transformational stories about companies, could be about personal growth.
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Can you just give me a specific example of the vector you want me to talk about that on?
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I think that what interested me most about what you were talking before was about how these entrepreneurs can come in and impact the employees' lives.
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So I was wondering maybe if there's one where the company grew and it also became a better employee culture or just impacted the lives of the employees.
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It could be interesting if there are any yeah.
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All right.
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I'll give a great one.
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So in the last couple of years, there has been a big change.
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There are always changes, I guess, in health care.
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But one of the interesting regulatory changes in health care is that in some states, it's now acceptable for nurse practitioners to serve as primary care providers for like standard visits, checkups for patients.
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They're always able to be the tip of the spear.
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But in a lot of states to this day, a doctor kind of needs to come behind them and sign off on it.
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So a couple of states, they've changed that because it's so hard to get primary care that they wanted to increase the number of providers that could do it.
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So they allowed nurse practitioners to it.
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And a very unintentional consequence of that is that it opened up this massive opportunity for assisted living facilities.
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So if you're a patient at an assisted living facility, you're a relatively acute patient.
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So you need to be seeing the doctor several times a year.
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And the way that typically works is, you know, a member of the team at the assisted living facility will be out of pocket for a whole day.
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They'll take, you know, several patients at the facility and put them into a van and then drive them across town.
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And then they have to kind of wait in the patient waiting room for several hours.
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And then they get seen and then they get put in a van and they come back.
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And it's a really bad experience for everyone.
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And it's not just it's uncomfortable for the patients.
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And then, you know, you lose a staff member at the assisted living facility for a day.
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There's also fall risk and there's data to support and many of us have anecdotes to support the idea that if you're older and you're not in great health and you fall, it's a really big impact on mortality.
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It's terrible.
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And And it started to be a big change in the way you could serve those patients.
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Rather than picking them up and taking them to the doctor's office, you could do the reverse model.
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You could bring the primary care providers to the assisted living facility.
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we've had the ability to do that for right?
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Now, decades, But for whatever it's reason, harder to convince a doctor to do that as opposed to nurse practitioners.
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There's several examples of them doing home care.
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And so I think it felt kind for whatever of, reason, it culturally, was able to convince folks to do it.
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And so there's a searcher.
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She buys the largest provider in the Pacific Northwest, which had not that much revenue, even though it was the largest provider in the Pacific Northwest, which had, you know, not that much revenue, even though it was the largest provider in the Pacific Northwest, like solidly a small business, if anything, like even a little small for search fund acquisition.
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And the reason it was small was simply because, you know, this was a very recent regulatory change.
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And we're talking like, you know, 20 nurse practitioners that are going out there and serving patients at these assisted living facilities.
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But there was demand from other assisted living facilities that they couldn't service, and they'd grown the number of nurse practitioners seriously over the prior 12, 24 months.
00:18:11.294 --> 00:18:18.294
and the kind of built this business around it, but endedly wasn't that passionate about the business of actually growing and scaling the company.
00:18:18.294 --> 00:18:21.969
She got into this because she wanted to serve patients.
00:18:21.969 --> 00:18:24.808
So we had the opportunity to come in, really young dynamic CEO.
00:18:24.808 --> 00:18:29.738
She steps in with the appetite to build systems and processes in place.
00:18:29.738 --> 00:18:34.164
And investors come in willing to put a bunch of growth capital.
00:18:34.164 --> 00:18:51.200
And we actually didn't put any debt on the business because we wanted to make sure that any cashflow that was generated was going to service and invest in growth, not to service debt.
00:18:51.061 --> 00:18:54.019
And over this 18 month period, they increased patient count by 50%.
00:18:53.952 --> 00:19:02.818
You know, just this absolutely wild story of being able to serve all of these more assisted living facility patients because now we have the capital and someone with the time and bandwidth to want to go out there and hire a bunch of more nurses, right?
00:19:02.818 --> 00:19:07.071
And also, you know, contact assisted living facilities and say, hey, we have this product, like this is a no brainer for you, like let us serve you.
00:19:07.071 --> 00:19:13.053
And all while she's doing that, she's improving the life of these individual nurse practitioners, right?
00:19:11.624 --> 00:19:13.053
She's putting systems in place.
00:19:13.053 --> 00:19:19.720
So they're not like taking notes on their phone to try and like, you know, then go home and chart up the stuff, right?
00:19:20.259 --> 00:19:32.260
Like making it so that these nurse practitioners can spend time with patients rather than, you know, these manual processes, not because, you know, the prior owner didn't, you know, want to put that stuff in place.
00:19:32.361 --> 00:19:34.413
She just didn't have the bandwidth, man.
00:19:34.413 --> 00:19:49.494
It's really hard running a small business when you don't have access to capital and resources, and there isn't a dedicated person out there growing the business.
00:19:49.494 --> 00:19:57.839
I love that story because it just captures all of the different vectors or many of the different vectors on which we can impact the lives of people with these small businesses, right?
00:19:57.839 --> 00:20:04.057
So to increase patient count by 50%, we of course have to hire more nurse practitioners.
00:20:04.057 --> 00:20:06.876
Those are folks who are getting, you know, great paying jobs, doing meaningful work.
00:20:06.876 --> 00:20:15.634
As part of making the company more professionalized are all these systems put in place that removed annoying and repetitive and manual inefficient processes and put stuff in place to improve quality of life of the nurses themselves.
00:20:15.634 --> 00:20:18.811
We serve 50% more assisted living facility patients.
00:20:18.711 --> 00:20:28.748
That's fewer patients who are going to fall, you know, fewer patients that are stuck suffering all day in a, you know, you know, physician's office waiting room, right?
00:20:26.928 --> 00:20:29.248
How do you not get excited about a story like that?
00:20:28.748 --> 00:20:29.248
Yeah.
00:20:29.248 --> 00:20:39.586
I think there's the IRR return, which gets a lot of people excited about search, but actually there are so many options for the people who get into search coming from these top schools.
00:20:39.586 --> 00:20:45.856
And one of the most amazing things is bringing in these smart people to work on problems that impact everyone's daily life.
00:20:45.856 --> 00:20:50.029
I mean, my grandmother was in an assisted living facility, had similar issues.
00:20:50.029 --> 00:20:51.567
I'm sure most people have.
00:20:51.567 --> 00:20:56.816
And not only is there that, it's working with the employees, listening to their needs and just creating processes that can improve their lives.
00:20:56.816 --> 00:20:57.830
So amazing.
00:20:57.830 --> 00:21:08.548
I mean, if there weren't enough reasons already to get into search, I think ones like that just make it such a great option and an essential one, I think, which is why it's great that you have the goal of help a thousand people.
00:21:08.548 --> 00:21:30.616
the more people we can get involved in this work, And the funny thing is, I'm not sure how, honestly, for those who are actually in the CEO seat, when I catch up with them and hear how they're doing, they're never starting the call saying, oh my gosh, we're absolutely hitting our financial base model that I put in my deal sim two years ago and absolutely crushing it from an IRR perspective.
00:21:30.596 --> 00:21:32.166
That's not how folks are wired.
00:21:32.166 --> 00:21:53.563
It's fun to think about that stuff before you jump in, but when you're actually in the CEO seat, the things that keep you up at night and the things that are on your mind is like, how do I make sure I can run this company in a competent enough way where I can keep putting food on the table of these families?
00:21:53.563 --> 00:21:55.611
How do I give my employees a great experience?
00:21:55.611 --> 00:21:58.423
How do I make sure I serve my customers well?
00:21:58.324 --> 00:22:08.156
And how do I grow this company so we can bring more people in the tent?
00:22:04.519 --> 00:22:10.153
We can give more customers a great service experience and we can give more high paying jobs.
00:22:10.153 --> 00:22:12.208
Like that's the stuff that they're thinking about.
00:22:12.208 --> 00:22:19.125
So, but I think it's one of those things that until you actually get in the seat, you, it's hard to like actually understand and internalize that.
00:22:19.125 --> 00:22:20.165
Hopefully that makes sense.
00:22:20.165 --> 00:22:20.961
You know mean?
00:22:20.165 --> 00:22:20.961
Sure.
00:22:20.961 --> 00:22:21.207
Yeah.
00:22:21.207 --> 00:22:24.740
Once it becomes real, you realize that small business is about people.
00:22:24.740 --> 00:22:26.626
It's not just about these numbers.
00:22:26.527 --> 00:22:26.705
Exactly.
00:22:26.705 --> 00:22:27.123
Yeah.
00:22:27.123 --> 00:22:40.621
Switching gears a little bit, how I first came across you is that you have a very active social media presence, whether it's LinkedIn or Twitter, and you have a lot of really insightful posts that help people like myself who were kind of new to the search community and trying to gain some knowledge.
00:22:40.621 --> 00:22:46.709
And, you know, I've been reading books and all that, but you have a lot of very insightful stuff that's clearly based on experiences like this that you've had.
00:22:46.709 --> 00:22:53.989
I was curious what your goal is with sharing all of those posts and how you generate the ideas for them.
00:22:53.989 --> 00:23:04.799
Is it like you have a regular posting schedule and you just come up with, oh, this is something that I experienced this week or how does, how do you go about that?
00:23:03.279 --> 00:23:04.799
What's your process?
00:23:04.799 --> 00:23:06.972
with the why, and then I'll talk about the how.
00:23:06.972 --> 00:23:07.815
Is that okay?
00:23:06.972 --> 00:23:07.815
Perfect.
00:23:07.815 --> 00:23:08.044
Great.
00:23:08.044 --> 00:23:09.574
So the why.
00:23:09.574 --> 00:23:21.715
Most people who launch a search are doing it out of business school, but when they think about doing a search, they're not thinking about it in the way that business school students think about on-campus recruiting.
00:23:21.715 --> 00:23:29.182
Not really thinking, oh, am I going to work at Google or am I going to take a job at McKinsey or am I going to do a search?
00:23:25.900 --> 00:23:34.105
And the reason they don't think about it that way, in my experience, is because search is a lifestyle, right?
00:23:31.707 --> 00:23:36.125
It's not just, I'll do a couple of years consulting and then figure it out from there.
00:23:36.125 --> 00:23:41.490
When people commit to this, it's because they want to change their life, do something entrepreneurial, and they're in it for the long haul.
00:23:41.490 --> 00:23:48.433
In a lot of cases, people are making a 10-year commitment and they don't even have 10 years of work experience, right?
00:23:46.981 --> 00:23:48.433
The typical searcher is 32.
00:23:48.433 --> 00:23:53.178
So you can see how that would work, especially if you're coming out of business school.
00:23:53.178 --> 00:24:07.162
And so you spent two years in business school, the math kind of turns out that you're going to spend more time, you're making a commitment to search longer than your entire career up to that front point.
00:24:07.162 --> 00:24:17.442
And generally, when people are grappling with the idea of trying to change their life and do something that's not just a job, but kind of truly a change to their lifestyle, they're thinking about it a lot.
00:24:17.442 --> 00:24:22.038
And it's kind of nice to have content available to them that they can see every day, right?
00:24:22.137 --> 00:24:24.921
Like snackable content is the way to think about it.
00:24:24.921 --> 00:24:27.356
There is a ton of excellent long-form content in our space.
00:24:27.356 --> 00:24:28.959
Great podcast from the Polsky Center.
00:24:28.959 --> 00:24:32.199
There are two folks who write long-form blogs that I love.
00:24:32.199 --> 00:24:34.339
There's many more, but certainly two I'll mention here.
00:24:34.339 --> 00:24:37.218
There's a guy named Guesswork Invest on Twitter who writes big deal, small business.
00:24:37.218 --> 00:24:39.279
It's a lovely sub stack and deeply insightful.
00:24:39.279 --> 00:24:43.852
And then there's another well-known search fund investor named Steve who DeVitkos, has a lovely blog.
00:24:43.751 --> 00:25:09.294
There's a ton of great long form content out there, but it just felt like in terms of stuff where people can get out of bed and they're, of course, thinking about search funds anyway, and just be able to open their phone and get on Twitter or LinkedIn and just have just a little reminder, some snackable content, something small for them to look at and be like, yeah, this is something I want to do with my life.
00:25:09.294 --> 00:25:11.215
And hopefully it's helpful or hopefully it's inspiring.
00:25:11.215 --> 00:25:13.528
It just felt like there was an opportunity to do that.
00:25:13.528 --> 00:25:22.132
And it's been kind of fun for me to sit down and write that stuff and often get teased about how ubiquitous the content is.
00:25:22.132 --> 00:25:28.402
You know, I go out of my way to post every day, but that's kind of a feature, not a bug.
00:25:28.501 --> 00:25:30.393
I think it's the regularity of it.
00:25:30.393 --> 00:25:37.757
That is part of what I'm trying to do here is just give folks the ability to every day engage with it and reinforce that decision.
00:25:37.757 --> 00:25:50.194
And sometimes it's from prospective searchers and I've had searchers text me or call me and say, Hey, honestly, I know this thing about if I'm going to reach out to 8,000 business owners over the course of a search, that literally means I'm going to get 7,999 no's for the one yes I get.
00:25:50.194 --> 00:25:51.214
I knew that, right?
00:25:51.214 --> 00:25:59.420
But it's kind of nice to wake up and see someone write it and just remind me of that, right?
00:25:55.615 --> 00:25:59.420
So stuff of that.
00:25:59.420 --> 00:26:00.056
So, Right.
00:26:00.056 --> 00:26:11.394
so stuff like that, it's kind of the ideas, educational, inspirational, and the regularity of it is a big part of it, given that search is a lifestyle, not just a two-year job.
00:26:11.394 --> 00:26:13.807
So that's kind of the why.
00:26:13.807 --> 00:26:29.700
And then in terms of the how, you know, what I do is I just sit down for four hours on a Sunday and try to write out this content and schedule it for the week.
00:26:29.700 --> 00:26:39.959
I just find the quality of it is higher, in my opinion, when I sit down and have some like really clear structure working time for it.
00:26:39.959 --> 00:26:54.736
And in terms of the inspiration for the content, actually, you know, the great thing about spending my entire week talking to searchers and prospective searchers, and for the searchers, particularly those in the search phase, which as you'll which as you've seen, that's basically where all my content's about.
00:26:54.836 --> 00:26:56.317
It's all about the search phase.
00:26:56.317 --> 00:26:58.563
They'll say smart, thoughtful, insightful things, and I'll just jot it down.
00:26:58.563 --> 00:27:03.986
And then on Sunday, I'll pull up that notepad file and say, oh, yeah, this is a really great insight this person shared.
00:27:03.986 --> 00:27:09.022
And let me anonymize it for their privacy and then find a way to write it.
00:27:09.022 --> 00:27:12.078
Maybe other folks will find it a way to write it to write it.
00:27:12.078 --> 00:27:12.201
helpful.
00:27:12.201 --> 00:27:13.868
Maybe other folks will find it helpful.
00:27:13.868 --> 00:27:16.462
You know, it again, goes back to this thing.
00:27:16.462 --> 00:27:17.204
It's really nice.
00:27:17.204 --> 00:27:22.151
I get to work with really impressive smart, people and impressive smart, people have great insights when they're out there doing this.
00:27:22.151 --> 00:27:29.673
And I try to play a small role in taking those insights directly from searchers and communicating it to potential searchers and other people who are interested in our world.
00:27:29.773 --> 00:27:30.898
It's clearly a great approach.
00:27:30.898 --> 00:27:39.720
And I think it kind of shows one of the benefits of being a bit of a younger investor is that people in this generation are spending a lot of time on their phone.
00:27:39.619 --> 00:28:09.123
And just that quick LinkedIn reminder is a great way to keep it up top of mind rather than having to go to the effort to read a book and maybe exactly question related to the advice that you've given searchers when it comes to the search phase what are some red flags that are often missed or what are some stories you have when it comes to due diligence where the searcher should have figured something out sooner than they did and i think about this stuff every day right like yeah as search fund investors you know it's not like private equity, right?
00:28:09.022 --> 00:28:10.003
We're not really like capital providers.
00:28:10.003 --> 00:28:17.777
I really think of myself as the steward or custodian of the careers of these people who decide to give up the opportunity to do something else and do this, right?
00:28:14.929 --> 00:28:17.777
It's a really serious commitment.
00:28:17.777 --> 00:28:20.839
When things go wrong, it's, you know, painful, really painful on the lives of these specific people.
00:28:20.839 --> 00:28:22.955
And by extension, should be painful for us, right?
00:28:22.955 --> 00:28:23.328
As investors.
00:28:23.328 --> 00:28:25.453
So I think about that a lot.
00:28:25.453 --> 00:28:27.228
I think my advice there would be, it's actually funny.
00:28:27.228 --> 00:28:34.021
It's going to echo some of this stuff we talked about earlier about small business being all about people, like you said, Nick.
00:28:34.021 --> 00:28:54.931
And it's that it's so easy in the diligence stage to be thinking about the company and the revenue quality and the business model and the customer concentration and reading the contracts and converting the financials from cash basis to gap and working with your lawyer and your accountant and your tax support and all that stuff a lot of whether or not your acquisition is going to be successful is based on the seller.
00:28:54.931 --> 00:28:58.675
As a gentle reminder, the seller literally hired every employee at that company.
00:28:58.675 --> 00:29:03.182
The seller literally sold every customer that that company has ever worked at.
00:29:03.182 --> 00:29:06.673
Even if they're on a beach in Bora Bora, even if they seem like they're out of the picture, they still have a massive impact on the company.
00:29:06.642 --> 00:29:14.300
And a little bit of a non sequitur, that's actually a really key difference between this and real estate, for example, right?
00:29:14.122 --> 00:29:19.920
Like this isn't like self storage where not to pick on that in particular, but you know, certain types of real estate where once the seller is gone, you can kind of figure it out.
00:29:19.920 --> 00:29:25.192
and there's not that much impact from them as long as they weren't committing fraud or something, right?
00:29:25.192 --> 00:29:26.317
It's really different.
00:29:26.317 --> 00:29:29.160
These companies aren't turnkey, even if the seller wasn't that involved day to day.
00:29:29.160 --> 00:29:30.259
They have a ton of influence.
00:29:30.259 --> 00:29:32.601
So you've got to really make sure that seller relationship is right.
00:29:32.601 --> 00:29:36.932
My number one piece of advice for things that people forget to do.
00:29:36.932 --> 00:29:41.028
And it's like I'll tell people this and you it's no big I get it.
00:29:41.028 --> 00:29:42.035
funny, then, know, deal.
00:29:42.035 --> 00:29:52.671
Searchers get busy, but four months later, searcher will find a deal and I'll ask them if they did this thing and they'll be like, I oh, totally forgot.
00:29:52.671 --> 00:29:53.529
Thanks for the reminder.
00:29:53.528 --> 00:29:58.875
So Mel, as soon as you sign your LOI background, check the seller like that day, right?
00:29:56.271 --> 00:30:04.502
Because if there's some big red flag, the seller went to jail 20 years prior for fraud, it doesn't matter how great the multiple is.
00:30:04.502 --> 00:30:06.500
That's not a buyable business.
00:30:06.519 --> 00:30:08.186
A little shout out to Ethos Risk.
00:30:08.186 --> 00:30:11.335
Ethos was acquired by a searcher, Micah Smith, several years ago.
00:30:11.335 --> 00:30:12.875
I've used them a lot.
00:30:12.875 --> 00:30:15.018
I've never had an issue where they missed something.
00:30:15.018 --> 00:30:19.074
I've used them a I've never had an issue where they missed They're quite lot.
00:30:19.173 --> 00:30:19.921
expensive, something.
00:30:19.820 --> 00:30:21.788
$700 as of this moment.
00:30:21.788 --> 00:30:29.980
But generally, I'm a big fan as a search investor for paying up for quality because again, we can't afford to get it wrong.
00:30:29.980 --> 00:30:36.359
Investors might lose a little bit of money, but from the point of view of the searcher, it's catastrophic on their life.
00:30:36.359 --> 00:30:40.047
So just generally try to pay up for quality.
00:30:40.146 --> 00:30:41.952
Ethos does a great job.
00:30:41.853 --> 00:30:46.571
The day you sign your LOI, pay the$700, use Ethos, make sure there's no problems there.
00:30:46.571 --> 00:30:56.775
So there's the tactical stuff like that, like background check the seller, but just generally over the course of diligence, 90 days in the post-LOI period, just make sure that there's not any weird signals from the seller.
00:30:56.775 --> 00:31:07.400
Make sure this is someone who's got integrity that you're dealing with and just seems like someone you wouldn't mind having a business relationship with over the next several years.
00:31:07.500 --> 00:31:12.332
Because again, they have a ton of influence.
00:31:12.332 --> 00:31:16.644
all other people at every stage of the process.
00:31:16.644 --> 00:31:18.967
Just one quick follow up.
00:31:18.967 --> 00:31:23.246
Why eat those over other background checks?
00:31:20.663 --> 00:31:25.519
Is it just that they uncover more than others would?
00:31:23.246 --> 00:31:26.710
I'm a massive homer for search fund acquired businesses.
00:31:26.710 --> 00:31:27.549
than others would?
00:31:27.549 --> 00:31:29.930
Man, I'm a massive homer for search fund acquired businesses.
00:31:29.930 --> 00:31:38.518
If I ever have the opportunity to buy something from a search required business, even if it's more expensive and not as good, I'll do it basically every day.
00:31:38.518 --> 00:31:45.048
So it's nice because Ethos does, and it's like part of the reason, and then folks who are search adjacent, right?
00:31:43.481 --> 00:31:46.903
It's part of the reason I think our communities really embraced people like August Felker.
00:31:46.903 --> 00:31:53.527
So just generally, whenever I have the opportunity to support a searcher-led or searcher-required business, it's kind of a no-brainer.
00:31:53.527 --> 00:31:55.490
And Ethos does this thing, right?
00:31:55.490 --> 00:31:56.599
And I've used them for so long.
00:31:56.599 --> 00:32:00.683
I also am just a big believer in the quality of the product.
00:32:00.683 --> 00:32:08.940
I've never worked with a searcher that used an ethos background check that had where there was like a miss and post-close, we were like, what the heck?
00:32:08.935 --> 00:32:14.734
Like, what was the point of paying several hundred dollars for a background check if you missed this important thing?
00:32:14.710 --> 00:32:15.688
So yeah, there are definitely cheaper background check providers out there.
00:32:15.614 --> 00:32:16.792
But again, like for me, it's worth paying up for quality.
00:32:16.893 --> 00:32:21.519
And like, yeah, and also it's just nice to support a searcher part required business, right?
00:32:21.519 --> 00:32:31.756
Yeah, and I think there's always something to be said to work with a business that's used to playing within the domain that you're working in and has that expertise.
00:32:31.655 --> 00:32:32.387
Also true, exactly.
00:32:32.387 --> 00:32:35.048
Also you have taken up enough of your time.
00:32:35.148 --> 00:32:36.644
Maybe just one last question.
00:32:36.644 --> 00:32:44.460
Do you have any message you'd like to share with the audience or a sentence or two about your life mission?
00:32:41.928 --> 00:32:44.460
What would it be?
00:32:44.333 --> 00:32:44.460
Yeah.
00:32:44.339 --> 00:32:44.413
Thanks for asking, Nick.
00:32:44.368 --> 00:32:44.460
Small business is inherently personal, right?
00:32:44.423 --> 00:32:44.460
Almost by design.
00:32:44.442 --> 00:32:54.056
You know, when I first started working with small businesses in 2010, what I came to learn quickly is that small businesses are people-sized businesses.
00:32:54.141 --> 00:32:56.603
They're businesses where the trajectory of the company is fundamentally altered, can be fundamentally altered by the addition of one key person.
00:32:56.603 --> 00:33:06.711
And the impact, as you measure the impact of those businesses, it's primarily based on the lives of the people it impacts, the individual people who work at that company and the individual people who are the customers of that business.
00:33:06.711 --> 00:33:12.888
And when you think about it from that lens, there's this really interesting macro trend that's happening in our country that ties directly to that, right?
00:33:12.888 --> 00:33:15.252
So it's called the silver tsunami.
00:33:15.252 --> 00:33:18.969
Many of your listeners will have heard of it before.
00:33:18.969 --> 00:33:24.952
Two thirds of jobs created in the United States in the last 25 years were in American small business.
00:33:24.952 --> 00:33:27.758
50% of American small businesses are owned by baby boomers.
00:33:27.758 --> 00:33:29.653
The youngest baby boomer is 60.
00:33:29.554 --> 00:33:38.420
Our country is about to undergo this massive change where there are all of these small businesses that employ millions and millions of Americans, and they need to find a new home.
00:33:38.420 --> 00:33:42.155
They need to find someone to run them.
00:33:42.155 --> 00:33:50.833
And my where someone will be working with us because the owner died and someone inherited the business and doesn't know what to do to be able to keep the lights on and continue to employ these people at the company.
00:33:50.742 --> 00:33:51.730
The business had no transition plan.
00:33:51.829 --> 00:33:58.172
The owner was constantly thinking, I'll figure it out next year, I'll figure it out next year, and eventually next year never came.
00:33:58.172 --> 00:34:11.050
So it's a really serious problem when we don't have a solution for who's gonna own these businesses after the baby boomers retire or pass.
00:34:11.025 --> 00:34:16.985
And in addition to just feeling deep personal mission for working and supporting these individual high potential entrepreneurs as they transform their lives by acquiring and running small businesses.
00:34:16.985 --> 00:34:22.871
One thing I love is that what we're doing as searchers and search investors plays a tiny role in solving that problem, right?
00:34:22.871 --> 00:34:24.434
role in solving that problem, right?
00:34:24.434 --> 00:34:38.896
And it's how cool is that, that the work that we do not only transforms the lives of the CEOs and owners of these businesses, the new owners, the searcher entrepreneurs who are running these businesses, but also helps playing a small role in fixing this massive macro problem in the United States, our country's about to have.
00:34:38.996 --> 00:34:40.864
So it's a pretty special thing.
00:34:40.864 --> 00:34:49.682
And I think we don't take the opportunity enough as an ecosystem to just think about that, that impact that we're having, besides just generating a lot of people, a lot of money or something like that.
00:34:49.682 --> 00:34:51.260
So thanks for the question.
00:34:51.260 --> 00:34:57.873
It is really fun to talk about the mission and some of that stuff that's behind the work that we do as a community.
00:34:57.871 --> 00:34:58.119
Amazing.
00:34:58.159 --> 00:34:59.693
Well, thanks so much for your time.
00:34:59.693 --> 00:35:01.139
It was an absolute pleasure.
00:35:01.139 --> 00:35:01.806
One last question.
00:35:01.806 --> 00:35:03.340
How can people reach me on Twitter.
00:35:03.340 --> 00:35:05.016
My handle is at Feta Fund.
00:35:04.989 --> 00:35:11.563
You can join 55,000 other people who are excited and passionate about search and entrepreneurship.
00:35:11.563 --> 00:35:13.675
And I also post on LinkedIn.
00:35:13.675 --> 00:35:17.644
So Mill Jarawala, you can find me on there by my name.
00:35:17.644 --> 00:35:20.804
And the fund once again is called Feta Fund, F-E-T-A-F-U-N-D.
00:35:20.804 --> 00:35:27.989
Feel free to reach out to us from our website and would be thrilled to get to know you.
00:00:00.116 --> 00:00:07.009
the big question is this, how are entrepreneurs who aren't scaling tech startups or building lifestyle businesses from scratch doing it?
00:00:05.727 --> 00:00:13.439
How do acquisition entrepreneurs find businesses, buy them, and then create generational wealth while taking on less risk?
00:00:10.374 --> 00:00:15.961
Welcome to Search Funded, the entrepreneurship through acquisition podcast.
00:00:16.060 --> 00:00:18.545
I'm your host, Nick Law.
00:00:18.644 --> 00:00:20.655
I'm here today with Somal Jerry Wallace.
00:00:20.655 --> 00:00:23.167
Somal is the founder of Fedafund.
00:00:23.067 --> 00:00:24.544
Fedafund is a search fund investor.
00:00:24.643 --> 00:00:30.251
And what's really interesting about Somal is he graduated from undergrad at Wharton just back in 2014.
00:00:30.251 --> 00:00:33.764
Then in 2022, just eight years later, he launched Fedafund.
00:00:33.664 --> 00:00:39.920
So clearly a very precocious guy getting started on the search fund investing game a lot sooner than others.
00:00:39.920 --> 00:00:51.615
He did spend three years at Trilogy, one of the largest search fund investors, but would love to hear more about your story and maybe a good place to start would just be where you got the inspiration to start your own search fund Yeah, absolutely.
00:00:51.615 --> 00:00:53.314
And hey, thanks so much for having me.
00:00:53.314 --> 00:01:03.073
There's a kind of longer story I'm pleased to share at some point today about how I first heard about search funds and first got into this world.
00:01:03.073 --> 00:01:08.118
But the inspiration for the FEDA fund, which stands for Founder Focused Entrepreneurship Through Acquisition, is all the way back in 2016.
00:01:08.118 --> 00:01:13.862
And our space has changed so much from then when I first started search fund investing.
00:01:13.862 --> 00:01:22.862
And yet the challenges and frustrations that searchers tell me about today, so many of them are literally the same ones that I used to hear in 2016.
00:01:22.862 --> 00:01:31.045
And so in 2022 or end of 21, I was given the opportunity to launch the FETA fund, which I can talk about.
00:01:31.045 --> 00:01:43.007
And for me, it just felt like an interesting opportunity to try and launch a fund that served searchers in a slightly different way than a lot of the other funds out there.
00:01:43.007 --> 00:01:52.346
And that was pretty exciting to play a small role in helping to address some of those frustrations and challenges that searchers have been telling me about for almost a decade.
00:01:52.445 --> 00:01:53.510
to dig deeper there.
00:01:53.510 --> 00:01:55.402
How did that opportunity materialize?
00:01:54.965 --> 00:01:55.402
Yeah, absolutely.
00:01:55.402 --> 00:02:01.739
Maybe it makes sense for me to start the narrative all the way back at the beginning, and then I can get into that.
00:02:03.560 --> 00:02:05.019
Does that work, Nick?
00:02:03.560 --> 00:02:05.019
Definitely.
00:02:05.079 --> 00:02:05.263
Sure.
00:02:05.263 --> 00:02:10.419
So as you said, graduated from an undergrad in 2014.
00:02:10.419 --> 00:02:13.425
But funnily enough, my journey to the world of small businesses started well before that.
00:02:13.425 --> 00:02:19.314
When I was at Wharton, I found myself to working with something called the Wharton Small Business Development Center.
00:02:19.314 --> 00:02:24.435
And that work was pro bono consulting work for Philly area small businesses that needed the help.
00:02:24.435 --> 00:02:27.918
Most of the clients were sub $1 million of revenue.
00:02:28.018 --> 00:02:31.385
All the clients were sub $10 million of revenue.
00:02:31.385 --> 00:02:49.557
And what I found about myself at that time was that working with companies that size and working with entrepreneurs, and critically, this last one I think is the most important, working with businesses with mature operating models was deeply, not only kind of deeply interesting for me, but really personally meaningful.
00:02:49.557 --> 00:03:00.052
And kind of knew that about myself, started my career at Bain, talked to anyone who would listen about how I wanted to find a way to work with companies like that.
00:03:00.052 --> 00:03:12.477
And you know, a guy I worked with said, hey, you know, I just graduated from Harvard Business School, because at the time, you only really knew about search out of Harvard Business School and Stanford's Graduate School of Business.
00:03:12.477 --> 00:03:13.741
And then said, I really want to be a searcher.
00:03:13.741 --> 00:03:15.689
You might want to be a search fund investor.
00:03:15.590 --> 00:03:23.508
So I took a six month leave of absence from Bain, went to work with a search fund investor trilogy search partners, as you mentioned, and found that I absolutely loved the work.
00:03:23.508 --> 00:03:27.272
It was really exciting, deeply meaningful, and just fun to work with these high potential entrepreneurs.
00:03:27.272 --> 00:03:37.310
And one way I like to frame it sometimes is that everyone who gets into the space, the first or second thing they do is to read the Stanford study and everyone sees that eye-popping 32.1% annualized return.
00:03:37.310 --> 00:03:42.448
I don't think everyone thinks about the practical reality of that for investors like me.
00:03:42.348 --> 00:03:49.377
It's that the average company I get to work with is doubling its equity value every two and a half years.
00:03:49.377 --> 00:03:52.647
It's the average company I get to work with.
00:03:52.647 --> 00:03:55.004
Half of them are growing their companies even faster than that.
00:03:55.004 --> 00:04:03.057
And it's unbelievably exciting to work with businesses like that every day in and out, every day in and day out.
00:04:03.057 --> 00:04:06.581
So I think that's what really got me hooked.
00:04:06.581 --> 00:04:12.981
And I think you'll find every search fund investor has a story like that, the ah moment for them.
00:04:12.981 --> 00:04:27.331
Spent some time back at Bain and some time in private equity, came back to the space and was just kind of fortunate enough to become someone that searchers were really excited to partner with and had the pleasure of being on the main panel at the Southeastern ETA conference in 2021.
00:04:27.331 --> 00:04:35.112
And right after that, a family office approached me and said, hey, if you wanted to raise your own fund, we'd love to be your first capital in.
00:04:35.112 --> 00:04:46.038
And the reality about our space, and maybe we'll get the chance to talk about it, is it's not that hard these days to raise money to invest in search funds.
00:04:46.038 --> 00:04:54.360
The really hard part is having searchers out there who want to work with you, who will tell other people, hey, SOMO is a great person to partner with.
00:04:54.360 --> 00:05:03.281
promoters in this world and also just built that conviction that there was an opportunity to launch a fund that worked with searchers in a different way and help them with those pain points that still hadn't been addressed.
00:05:03.281 --> 00:05:05.274
And so, you know, decided to launch the Feta Fund.
00:05:05.274 --> 00:05:08.567
Yeah, that's clearly you're doing something right to make that progress that quickly.
00:05:08.567 --> 00:05:15.000
But I guess my question would be, what do you think that you offer that's different at Feta Fund from other investors?
00:05:13.348 --> 00:05:27.096
What's your value add that makes searchers excited to work with you as compared with I want to go back to the thing you just said.
00:05:27.007 --> 00:05:28.620
A lot of this, sometimes it's just better to be lucky than good.
00:05:28.620 --> 00:05:39.810
And I think one thing I feel very fortunate about or feel lucky is that it turns out if you build your career in an industry that's 7Xs in 10 years, right?
00:05:39.709 --> 00:05:42.596
Number of searchers went from about 10 to about 70 from 2012 to 2021.
00:05:42.596 --> 00:05:44.363
Really, really cool opportunities sprout up.
00:05:44.363 --> 00:05:48.394
And so I definitely feel lucky to have been in the right place at the right time.
00:05:48.394 --> 00:05:51.341
So that really was a big part of it.
00:05:51.341 --> 00:05:55.999
And in terms of how I work with searchers, the way I would describe it is this.
00:05:55.999 --> 00:06:00.293
It's generally not that difficult to get support once you've become a small business CEO.
00:06:00.293 --> 00:06:15.206
Once you have 2 million of EBITDA to pay for consultants and to get time with your investors when they've written a one and a half to $5 million check in your company, people will return your calls and there are resources available for you.
00:06:15.206 --> 00:06:21.737
I think a frustration I hear from searchers is that when you're in that search stage, that kind of founding just part of the name stage, it's a lot right?
00:06:20.678 --> 00:06:25.535
FETA, harder, Investors have written a $15,000 to $75,000 something check, like maybe that, a $100,000 check.
00:06:25.535 --> 00:06:35.086
You are out there sitting by yourself in a WeWork, sending emails all day, getting rejected, and don't really have the money to spend on help or support.
00:06:35.086 --> 00:06:42.543
And the really wild thing is that a lot of the same talk track and points that searchers used to bring up and tell me in 2016.
00:06:42.543 --> 00:06:43.673
I still hear today.
00:06:43.673 --> 00:06:56.439
And so the idea of the FETA fund is it's a specialist fund, just work with a handful of folks each year to kind of give them a highly custom bespoke experience.
00:06:56.358 --> 00:07:06.480
And it's laser focused on the 600 days of the search, kind of 30 days pre-capital call before you call your initial capital up to 30 days after you acquire.
00:07:06.382 --> 00:07:14.420
And for self-funded searchers, it's the same thing.
00:07:14.519 --> 00:07:16.783
We don't really have that same traditional fund structure.
00:07:16.783 --> 00:07:26.942
So I don't have a kind of similar period of time to talk about, but up from the early days and when you launch a self-funded search, well before you find an opportunity, right?
00:07:23.678 --> 00:07:30.083
I want to get to know folks really early into their search up through about 30 days post-close.
00:07:29.983 --> 00:07:35.290
And I spend, you know, 90% plus of my time helping searchers source diligence and ultimately acquire these companies.
00:07:35.290 --> 00:07:40.879
I believe the most valuable thing search investors can offer their searchers is their time.
00:07:40.879 --> 00:07:42.571
This isn't private equity.
00:07:42.571 --> 00:07:46.252
There isn't some playbook, right?
00:07:42.571 --> 00:07:50.593
That's part of the reason the returns and opportunities of our space have remained so great for almost 40 years.
00:07:50.593 --> 00:08:07.456
And I have found that searchers find it really helpful when you're available and kind of set up the time to be able to answer those Friday night calls and take the three hours to debrief in the middle of a conference to figure out how a searcher can spend the second day or third day of the conference and have it be more effective.
00:08:07.355 --> 00:08:08.648
I did that last night.
00:08:08.548 --> 00:08:22.699
So there's a lot of that type of stuff, getting really specific and in the weeds and being there and present for the sourcing and searching and diligencing stage, because that's the part that's the most frustrating.
00:08:22.699 --> 00:08:24.858
I even hear that from CEOs.
00:08:24.858 --> 00:08:31.605
They'll tell me, hey, it's been a little bit challenging to step into this business where I now have to manage 140 employees.
00:08:31.605 --> 00:08:35.009
Boy, this is way better than searching.
00:08:35.009 --> 00:08:37.091
How wild is that?
00:08:37.091 --> 00:08:37.519
For sure.
00:08:37.519 --> 00:08:46.120
So it seems that your focus is really on the search phase and other investors may be there for the operational or at the acquisition phase a bit more.
00:08:46.120 --> 00:08:52.695
one thing, well put it is, I just think in our world, for a lot of these larger investors, the burden we put on them is so hard.
00:08:52.595 --> 00:08:54.850
The expectation is that they're a one-stop shop, they help with everything.
00:08:54.850 --> 00:08:57.980
And it's really difficult to do that, right?
00:08:56.129 --> 00:09:00.345
And so naturally, they have to allocate their time or they allocate their capital.
00:09:00.345 --> 00:09:01.313
It's just a practical reality.
00:09:01.405 --> 00:09:06.600
I call the Fed of Fund a specialist investor because the Fed of Fund is not a lead investor.
00:09:06.600 --> 00:09:07.812
It's a medium-sized investor.
00:09:07.812 --> 00:09:14.539
And there's some power knowing that, hey, there's some number of leads, some bigger institutional players that are also in the cap table.
00:09:14.720 --> 00:09:17.798
And I know they can provide support with so much stuff.
00:09:17.798 --> 00:09:27.134
And if we take that as an assumption, as a given, it creates opportunities for other investors in the cap table to become specialists, help with one specific part of the journey.
00:09:27.034 --> 00:09:31.476
So I definitely want to echo and reinforce the value proposition of some of those other larger investors.
00:09:31.476 --> 00:09:32.642
They're really important.
00:09:32.642 --> 00:09:38.642
It's just the expectations on them and their responsibilities are a little bit different because they are that Sure.
00:09:38.642 --> 00:09:39.965
I think that's really interesting.
00:09:39.965 --> 00:09:44.913
As you mentioned, the number of searches, maybe 7X during the time you first got involved to 2021.
00:09:44.913 --> 00:09:47.808
I think by today, it's probably an even larger multiple than that.
00:09:47.808 --> 00:09:55.779
And clearly there's a need for And and more types of investors when the number of searches is increasing so quickly.
00:09:55.879 --> 00:09:59.791
I was curious how you decided that was sort of the specialty you wanted to focus on.
00:09:59.791 --> 00:10:07.317
Was it based on your own private experience that that's where you felt you added the most value or enjoyed most?
00:10:04.421 --> 00:10:11.969
Or is that just what you thought the greatest need was and you thought that you could tackle funny.
00:10:11.969 --> 00:10:20.302
One of the really fun things about being a search investor is that the people we work with are really smart and impressive.
00:10:20.302 --> 00:10:26.767
I'll just give an example on the traditional search side because it's a little easier of an anecdote.
00:10:26.767 --> 00:10:33.783
Anyone who can raise $600,000 for a traditional search fund from 12 very sophisticated, successful, smart individuals, that's an impressive person, right?
00:10:33.783 --> 00:10:37.375
You don't get to that place without being someone impressive and thoughtful and smart.
00:10:37.375 --> 00:10:44.754
And generally, if you ask folks like that, what are the parts of their life that are painful and frustrating?
00:10:43.442 --> 00:10:44.754
They'll tell you, right?
00:10:44.754 --> 00:10:57.518
They have a lot of great insight into the parts of this that are just not And so launching FedA, you know, again, I was given that opportunity and was thinking seriously about but it, I knew that it didn't make any sense to launch a fund.
00:10:57.518 --> 00:10:59.313
Like searchers don't need more sources of capital, right?
00:10:59.313 --> 00:11:01.369
There's well over a hundred search fund investors out there.
00:11:02.503 --> 00:11:03.254
That's not a differentiator.
00:11:03.254 --> 00:11:11.399
The idea, what I kind of landed on ultimately was I only wanted to do this if I saw an opportunity to provide something different, right?
00:11:11.399 --> 00:11:14.361
The world doesn't need another generic search fund investing fund.
00:11:14.361 --> 00:11:25.443
And so having those conversations and having that ah moment where I was like, oh my gosh, I feel like I'm in 2016.
00:11:25.344 --> 00:11:28.750
Literally some of the same phrases were exactly the same.
00:11:28.750 --> 00:11:33.527
That was kind of an ah, that there's probably an opportunity here.
00:11:33.427 --> 00:11:38.769
It's just going to be part of the next evolution of, of our space and, and just generally, right.
00:11:38.769 --> 00:11:42.745
I think it's a good idea to spend time where people feel frustrated and challenged.
00:11:42.745 --> 00:11:51.452
So that's like a nice way to get to spend your time.
00:11:51.552 --> 00:11:53.813
You know, I'd been in the space and done a fair number of things where I had experience doing that as well.
00:11:53.715 --> 00:11:56.284
And just insights I could leverage from the 50 plus searchers I've worked with since 2016.
00:11:56.284 --> 00:11:59.917
So was a place where I knew and could hear from searchers.
00:11:59.917 --> 00:12:02.629
They were looking for support, wanted more support.
00:12:02.629 --> 00:12:09.866
And it did nicely dovetail with some of that experience I built having been in the space or close to the space for so long.
00:12:09.866 --> 00:12:10.264
Sure.
00:12:10.264 --> 00:12:16.644
You've mentioned that your goal is to help a thousand entrepreneurs acquire businesses in your lifetime, I guess.
00:12:16.644 --> 00:12:20.327
Can you talk about where that mission came from and how at it.
00:12:20.227 --> 00:12:21.105
Yeah.
00:12:21.105 --> 00:12:24.418
I guess I would put it this way.
00:12:24.519 --> 00:12:26.659
Look, it's cool to talk about deals, right?
00:12:26.759 --> 00:12:36.625
Who doesn't have a nice time thinking about investing millions of dollars in investment opportunity that has big potential and hard, amorphous problem?
00:12:33.039 --> 00:12:37.475
That's really fun and exciting to talk about.
00:12:37.475 --> 00:12:47.919
But what got me into this, the thing that I really love about working with searchers, and the thing I loved all the way back in the early 2010s working with small businesses is it's so personal, right?
00:12:47.919 --> 00:12:50.333
These aren't companies with tens of thousands of employees.
00:12:50.333 --> 00:12:53.384
It's like 40 typically, right?
00:12:50.333 --> 00:12:58.231
And impact is measured not in terms of gross dollars created, but the impact on the lives of specific people of names, you know?
00:12:58.231 --> 00:13:05.149
You can say, hey, you know, pushing increasing pay for our workers who make minimum wage.
00:13:05.149 --> 00:13:09.500
You know, yeah, it's smart for the business so we can attract great talent and retain people.
00:13:09.500 --> 00:13:14.668
But like, think about what it's going to mean for Elizabeth and Jonathan and Frank and whoever else, right?
00:13:14.668 --> 00:13:19.422
How fun is that?
00:13:14.668 --> 00:13:45.256
And so I think framing what I really want to do over the next 30, 40 plus years as a search fund investor, not in the context of doing a thousand deals or generating a billion dollars of equity value, but from the point of view of the specific human beings I want to work with, I think it just better captured what is why I'm so passionate about, about search and working with searchers.
00:13:45.256 --> 00:13:46.390
It's really about the people.
00:13:46.390 --> 00:14:07.408
And yeah, you know, the company growth stories are fun and exciting, but also can't even imagine how wild it is for me to get to know someone, you know, their first year of business school, and they're trying to decide if they want to go back and take their private equity VP offer or whatever, right?
00:14:04.230 --> 00:14:14.676
And versus that versus doing a search, and then, you know, five or seven years later, you know, they might have successfully exited and taken home $25 million.
00:14:14.676 --> 00:14:19.197
Like the velocity of the stories just so happened so fast.
00:14:19.096 --> 00:14:27.317
And that's a part of it too, getting the chance to be along for that journey, not just for the 50 plus I've worked with so far, but for another 950.
00:14:27.317 --> 00:14:27.528
Definitely.
00:14:27.528 --> 00:14:28.024
Yeah.
00:14:28.125 --> 00:14:36.595
I think that's why either on the search side or investment side, it's a very exciting option compared to a lot of the other things you could be doing with your time.
00:14:36.595 --> 00:14:44.631
So if you want to impact people's lives, why not work with traditional small businesses that are in communities across the country?
00:14:44.631 --> 00:14:44.716
Exactly.
00:14:44.716 --> 00:14:50.830
Maybe you could give me an example of one or two searches that you really enjoyed or the story was the most rewarding for you.
00:14:50.730 --> 00:14:50.990
yeah.
00:14:50.990 --> 00:14:52.647
I'm happy to do that.
00:14:52.547 --> 00:14:55.706
But there's like four or five different lenses we could talk about that.
00:14:55.706 --> 00:14:58.653
One would be transformational stories about companies, could be about personal growth.
00:14:58.653 --> 00:15:02.695
Can you just give me a specific example of the vector you want me to talk about that on?
00:15:02.595 --> 00:15:10.556
I think that what interested me most about what you were talking before was about how these entrepreneurs can come in and impact the employees' lives.
00:15:10.556 --> 00:15:19.005
So I was wondering maybe if there's one where the company grew and it also became a better employee culture or just impacted the lives of the employees.
00:15:19.005 --> 00:15:22.196
It could be interesting if there are any yeah.
00:15:22.196 --> 00:15:22.799
All right.
00:15:22.980 --> 00:15:24.251
I'll give a great one.
00:15:24.251 --> 00:15:28.147
So in the last couple of years, there has been a big change.
00:15:28.147 --> 00:15:30.532
There are always changes, I guess, in health care.
00:15:30.532 --> 00:15:40.177
But one of the interesting regulatory changes in health care is that in some states, it's now acceptable for nurse practitioners to serve as primary care providers for like standard visits, checkups for patients.
00:15:40.177 --> 00:15:42.799
They're always able to be the tip of the spear.
00:15:42.799 --> 00:15:51.600
But in a lot of states to this day, a doctor kind of needs to come behind them and sign off on it.
00:15:51.919 --> 00:16:00.966
So a couple of states, they've changed that because it's so hard to get primary care that they wanted to increase the number of providers that could do it.
00:16:00.966 --> 00:16:02.628
So they allowed nurse practitioners to it.
00:16:02.628 --> 00:16:08.236
And a very unintentional consequence of that is that it opened up this massive opportunity for assisted living facilities.
00:16:08.336 --> 00:16:13.749
So if you're a patient at an assisted living facility, you're a relatively acute patient.
00:16:13.749 --> 00:16:17.125
So you need to be seeing the doctor several times a year.
00:16:17.125 --> 00:16:26.153
And the way that typically works is, you know, a member of the team at the assisted living facility will be out of pocket for a whole day.
00:16:26.153 --> 00:16:31.125
They'll take, you know, several patients at the facility and put them into a van and then drive them across town.
00:16:31.125 --> 00:16:35.354
And then they have to kind of wait in the patient waiting room for several hours.
00:16:35.354 --> 00:16:41.895
And then they get seen and then they get put in a van and they come back.
00:16:41.796 --> 00:16:43.628
And it's a really bad experience for everyone.
00:16:43.628 --> 00:16:45.559
And it's not just it's uncomfortable for the patients.
00:16:45.639 --> 00:16:50.960
And then, you know, you lose a staff member at the assisted living facility for a day.
00:16:50.960 --> 00:17:06.036
There's also fall risk and there's data to support and many of us have anecdotes to support the idea that if you're older and you're not in great health and you fall, it's a really big impact on mortality.
00:17:06.135 --> 00:17:06.383
It's terrible.
00:17:06.383 --> 00:17:10.336
And And it started to be a big change in the way you could serve those patients.
00:17:10.336 --> 00:17:14.445
Rather than picking them up and taking them to the doctor's office, you could do the reverse model.
00:17:14.445 --> 00:17:16.942
You could bring the primary care providers to the assisted living facility.
00:17:16.942 --> 00:17:21.141
we've had the ability to do that for right?
00:17:18.982 --> 00:17:26.020
Now, decades, But for whatever it's reason, harder to convince a doctor to do that as opposed to nurse practitioners.
00:17:26.020 --> 00:17:29.008
There's several examples of them doing home care.
00:17:28.907 --> 00:17:34.855
And so I think it felt kind for whatever of, reason, it culturally, was able to convince folks to do it.
00:17:34.855 --> 00:17:36.673
And so there's a searcher.
00:17:36.773 --> 00:17:52.462
She buys the largest provider in the Pacific Northwest, which had not that much revenue, even though it was the largest provider in the Pacific Northwest, which had, you know, not that much revenue, even though it was the largest provider in the Pacific Northwest, like solidly a small business, if anything, like even a little small for search fund acquisition.
00:17:52.563 --> 00:17:56.499
And the reason it was small was simply because, you know, this was a very recent regulatory change.
00:17:56.598 --> 00:18:02.701
And we're talking like, you know, 20 nurse practitioners that are going out there and serving patients at these assisted living facilities.
00:18:02.601 --> 00:18:11.294
But there was demand from other assisted living facilities that they couldn't service, and they'd grown the number of nurse practitioners seriously over the prior 12, 24 months.
00:18:11.294 --> 00:18:18.294
and the kind of built this business around it, but endedly wasn't that passionate about the business of actually growing and scaling the company.
00:18:18.294 --> 00:18:21.969
She got into this because she wanted to serve patients.
00:18:21.969 --> 00:18:24.808
So we had the opportunity to come in, really young dynamic CEO.
00:18:24.808 --> 00:18:29.738
She steps in with the appetite to build systems and processes in place.
00:18:29.738 --> 00:18:34.164
And investors come in willing to put a bunch of growth capital.
00:18:34.164 --> 00:18:51.200
And we actually didn't put any debt on the business because we wanted to make sure that any cashflow that was generated was going to service and invest in growth, not to service debt.
00:18:51.061 --> 00:18:54.019
And over this 18 month period, they increased patient count by 50%.
00:18:53.952 --> 00:19:02.818
You know, just this absolutely wild story of being able to serve all of these more assisted living facility patients because now we have the capital and someone with the time and bandwidth to want to go out there and hire a bunch of more nurses, right?
00:19:02.818 --> 00:19:07.071
And also, you know, contact assisted living facilities and say, hey, we have this product, like this is a no brainer for you, like let us serve you.
00:19:07.071 --> 00:19:13.053
And all while she's doing that, she's improving the life of these individual nurse practitioners, right?
00:19:11.624 --> 00:19:13.053
She's putting systems in place.
00:19:13.053 --> 00:19:19.720
So they're not like taking notes on their phone to try and like, you know, then go home and chart up the stuff, right?
00:19:20.259 --> 00:19:32.260
Like making it so that these nurse practitioners can spend time with patients rather than, you know, these manual processes, not because, you know, the prior owner didn't, you know, want to put that stuff in place.
00:19:32.361 --> 00:19:34.413
She just didn't have the bandwidth, man.
00:19:34.413 --> 00:19:49.494
It's really hard running a small business when you don't have access to capital and resources, and there isn't a dedicated person out there growing the business.
00:19:49.494 --> 00:19:57.839
I love that story because it just captures all of the different vectors or many of the different vectors on which we can impact the lives of people with these small businesses, right?
00:19:57.839 --> 00:20:04.057
So to increase patient count by 50%, we of course have to hire more nurse practitioners.
00:20:04.057 --> 00:20:06.876
Those are folks who are getting, you know, great paying jobs, doing meaningful work.
00:20:06.876 --> 00:20:15.634
As part of making the company more professionalized are all these systems put in place that removed annoying and repetitive and manual inefficient processes and put stuff in place to improve quality of life of the nurses themselves.
00:20:15.634 --> 00:20:18.811
We serve 50% more assisted living facility patients.
00:20:18.711 --> 00:20:28.748
That's fewer patients who are going to fall, you know, fewer patients that are stuck suffering all day in a, you know, you know, physician's office waiting room, right?
00:20:26.928 --> 00:20:29.248
How do you not get excited about a story like that?
00:20:28.748 --> 00:20:29.248
Yeah.
00:20:29.248 --> 00:20:39.586
I think there's the IRR return, which gets a lot of people excited about search, but actually there are so many options for the people who get into search coming from these top schools.
00:20:39.586 --> 00:20:45.856
And one of the most amazing things is bringing in these smart people to work on problems that impact everyone's daily life.
00:20:45.856 --> 00:20:50.029
I mean, my grandmother was in an assisted living facility, had similar issues.
00:20:50.029 --> 00:20:51.567
I'm sure most people have.
00:20:51.567 --> 00:20:56.816
And not only is there that, it's working with the employees, listening to their needs and just creating processes that can improve their lives.
00:20:56.816 --> 00:20:57.830
So amazing.
00:20:57.830 --> 00:21:08.548
I mean, if there weren't enough reasons already to get into search, I think ones like that just make it such a great option and an essential one, I think, which is why it's great that you have the goal of help a thousand people.
00:21:08.548 --> 00:21:30.616
the more people we can get involved in this work, And the funny thing is, I'm not sure how, honestly, for those who are actually in the CEO seat, when I catch up with them and hear how they're doing, they're never starting the call saying, oh my gosh, we're absolutely hitting our financial base model that I put in my deal sim two years ago and absolutely crushing it from an IRR perspective.
00:21:30.596 --> 00:21:32.166
That's not how folks are wired.
00:21:32.166 --> 00:21:53.563
It's fun to think about that stuff before you jump in, but when you're actually in the CEO seat, the things that keep you up at night and the things that are on your mind is like, how do I make sure I can run this company in a competent enough way where I can keep putting food on the table of these families?
00:21:53.563 --> 00:21:55.611
How do I give my employees a great experience?
00:21:55.611 --> 00:21:58.423
How do I make sure I serve my customers well?
00:21:58.324 --> 00:22:08.156
And how do I grow this company so we can bring more people in the tent?
00:22:04.519 --> 00:22:10.153
We can give more customers a great service experience and we can give more high paying jobs.
00:22:10.153 --> 00:22:12.208
Like that's the stuff that they're thinking about.
00:22:12.208 --> 00:22:19.125
So, but I think it's one of those things that until you actually get in the seat, you, it's hard to like actually understand and internalize that.
00:22:19.125 --> 00:22:20.165
Hopefully that makes sense.
00:22:20.165 --> 00:22:20.961
You know mean?
00:22:20.165 --> 00:22:20.961
Sure.
00:22:20.961 --> 00:22:21.207
Yeah.
00:22:21.207 --> 00:22:24.740
Once it becomes real, you realize that small business is about people.
00:22:24.740 --> 00:22:26.626
It's not just about these numbers.
00:22:26.527 --> 00:22:26.705
Exactly.
00:22:26.705 --> 00:22:27.123
Yeah.
00:22:27.123 --> 00:22:40.621
Switching gears a little bit, how I first came across you is that you have a very active social media presence, whether it's LinkedIn or Twitter, and you have a lot of really insightful posts that help people like myself who were kind of new to the search community and trying to gain some knowledge.
00:22:40.621 --> 00:22:46.709
And, you know, I've been reading books and all that, but you have a lot of very insightful stuff that's clearly based on experiences like this that you've had.
00:22:46.709 --> 00:22:53.989
I was curious what your goal is with sharing all of those posts and how you generate the ideas for them.
00:22:53.989 --> 00:23:04.799
Is it like you have a regular posting schedule and you just come up with, oh, this is something that I experienced this week or how does, how do you go about that?
00:23:03.279 --> 00:23:04.799
What's your process?
00:23:04.799 --> 00:23:06.972
with the why, and then I'll talk about the how.
00:23:06.972 --> 00:23:07.815
Is that okay?
00:23:06.972 --> 00:23:07.815
Perfect.
00:23:07.815 --> 00:23:08.044
Great.
00:23:08.044 --> 00:23:09.574
So the why.
00:23:09.574 --> 00:23:21.715
Most people who launch a search are doing it out of business school, but when they think about doing a search, they're not thinking about it in the way that business school students think about on-campus recruiting.
00:23:21.715 --> 00:23:29.182
Not really thinking, oh, am I going to work at Google or am I going to take a job at McKinsey or am I going to do a search?
00:23:25.900 --> 00:23:34.105
And the reason they don't think about it that way, in my experience, is because search is a lifestyle, right?
00:23:31.707 --> 00:23:36.125
It's not just, I'll do a couple of years consulting and then figure it out from there.
00:23:36.125 --> 00:23:41.490
When people commit to this, it's because they want to change their life, do something entrepreneurial, and they're in it for the long haul.
00:23:41.490 --> 00:23:48.433
In a lot of cases, people are making a 10-year commitment and they don't even have 10 years of work experience, right?
00:23:46.981 --> 00:23:48.433
The typical searcher is 32.
00:23:48.433 --> 00:23:53.178
So you can see how that would work, especially if you're coming out of business school.
00:23:53.178 --> 00:24:07.162
And so you spent two years in business school, the math kind of turns out that you're going to spend more time, you're making a commitment to search longer than your entire career up to that front point.
00:24:07.162 --> 00:24:17.442
And generally, when people are grappling with the idea of trying to change their life and do something that's not just a job, but kind of truly a change to their lifestyle, they're thinking about it a lot.
00:24:17.442 --> 00:24:22.038
And it's kind of nice to have content available to them that they can see every day, right?
00:24:22.137 --> 00:24:24.921
Like snackable content is the way to think about it.
00:24:24.921 --> 00:24:27.356
There is a ton of excellent long-form content in our space.
00:24:27.356 --> 00:24:28.959
Great podcast from the Polsky Center.
00:24:28.959 --> 00:24:32.199
There are two folks who write long-form blogs that I love.
00:24:32.199 --> 00:24:34.339
There's many more, but certainly two I'll mention here.
00:24:34.339 --> 00:24:37.218
There's a guy named Guesswork Invest on Twitter who writes big deal, small business.
00:24:37.218 --> 00:24:39.279
It's a lovely sub stack and deeply insightful.
00:24:39.279 --> 00:24:43.852
And then there's another well-known search fund investor named Steve who DeVitkos, has a lovely blog.
00:24:43.751 --> 00:25:09.294
There's a ton of great long form content out there, but it just felt like in terms of stuff where people can get out of bed and they're, of course, thinking about search funds anyway, and just be able to open their phone and get on Twitter or LinkedIn and just have just a little reminder, some snackable content, something small for them to look at and be like, yeah, this is something I want to do with my life.
00:25:09.294 --> 00:25:11.215
And hopefully it's helpful or hopefully it's inspiring.
00:25:11.215 --> 00:25:13.528
It just felt like there was an opportunity to do that.
00:25:13.528 --> 00:25:22.132
And it's been kind of fun for me to sit down and write that stuff and often get teased about how ubiquitous the content is.
00:25:22.132 --> 00:25:28.402
You know, I go out of my way to post every day, but that's kind of a feature, not a bug.
00:25:28.501 --> 00:25:30.393
I think it's the regularity of it.
00:25:30.393 --> 00:25:37.757
That is part of what I'm trying to do here is just give folks the ability to every day engage with it and reinforce that decision.
00:25:37.757 --> 00:25:50.194
And sometimes it's from prospective searchers and I've had searchers text me or call me and say, Hey, honestly, I know this thing about if I'm going to reach out to 8,000 business owners over the course of a search, that literally means I'm going to get 7,999 no's for the one yes I get.
00:25:50.194 --> 00:25:51.214
I knew that, right?
00:25:51.214 --> 00:25:59.420
But it's kind of nice to wake up and see someone write it and just remind me of that, right?
00:25:55.615 --> 00:25:59.420
So stuff of that.
00:25:59.420 --> 00:26:00.056
So, Right.
00:26:00.056 --> 00:26:11.394
so stuff like that, it's kind of the ideas, educational, inspirational, and the regularity of it is a big part of it, given that search is a lifestyle, not just a two-year job.
00:26:11.394 --> 00:26:13.807
So that's kind of the why.
00:26:13.807 --> 00:26:29.700
And then in terms of the how, you know, what I do is I just sit down for four hours on a Sunday and try to write out this content and schedule it for the week.
00:26:29.700 --> 00:26:39.959
I just find the quality of it is higher, in my opinion, when I sit down and have some like really clear structure working time for it.
00:26:39.959 --> 00:26:54.736
And in terms of the inspiration for the content, actually, you know, the great thing about spending my entire week talking to searchers and prospective searchers, and for the searchers, particularly those in the search phase, which as you'll which as you've seen, that's basically where all my content's about.
00:26:54.836 --> 00:26:56.317
It's all about the search phase.
00:26:56.317 --> 00:26:58.563
They'll say smart, thoughtful, insightful things, and I'll just jot it down.
00:26:58.563 --> 00:27:03.986
And then on Sunday, I'll pull up that notepad file and say, oh, yeah, this is a really great insight this person shared.
00:27:03.986 --> 00:27:09.022
And let me anonymize it for their privacy and then find a way to write it.
00:27:09.022 --> 00:27:12.078
Maybe other folks will find it a way to write it to write it.
00:27:12.078 --> 00:27:12.201
helpful.
00:27:12.201 --> 00:27:13.868
Maybe other folks will find it helpful.
00:27:13.868 --> 00:27:16.462
You know, it again, goes back to this thing.
00:27:16.462 --> 00:27:17.204
It's really nice.
00:27:17.204 --> 00:27:22.151
I get to work with really impressive smart, people and impressive smart, people have great insights when they're out there doing this.
00:27:22.151 --> 00:27:29.673
And I try to play a small role in taking those insights directly from searchers and communicating it to potential searchers and other people who are interested in our world.
00:27:29.773 --> 00:27:30.898
It's clearly a great approach.
00:27:30.898 --> 00:27:39.720
And I think it kind of shows one of the benefits of being a bit of a younger investor is that people in this generation are spending a lot of time on their phone.
00:27:39.619 --> 00:28:09.123
And just that quick LinkedIn reminder is a great way to keep it up top of mind rather than having to go to the effort to read a book and maybe exactly question related to the advice that you've given searchers when it comes to the search phase what are some red flags that are often missed or what are some stories you have when it comes to due diligence where the searcher should have figured something out sooner than they did and i think about this stuff every day right like yeah as search fund investors you know it's not like private equity, right?
00:28:09.022 --> 00:28:10.003
We're not really like capital providers.
00:28:10.003 --> 00:28:17.777
I really think of myself as the steward or custodian of the careers of these people who decide to give up the opportunity to do something else and do this, right?
00:28:14.929 --> 00:28:17.777
It's a really serious commitment.
00:28:17.777 --> 00:28:20.839
When things go wrong, it's, you know, painful, really painful on the lives of these specific people.
00:28:20.839 --> 00:28:22.955
And by extension, should be painful for us, right?
00:28:22.955 --> 00:28:23.328
As investors.
00:28:23.328 --> 00:28:25.453
So I think about that a lot.
00:28:25.453 --> 00:28:27.228
I think my advice there would be, it's actually funny.
00:28:27.228 --> 00:28:34.021
It's going to echo some of this stuff we talked about earlier about small business being all about people, like you said, Nick.
00:28:34.021 --> 00:28:54.931
And it's that it's so easy in the diligence stage to be thinking about the company and the revenue quality and the business model and the customer concentration and reading the contracts and converting the financials from cash basis to gap and working with your lawyer and your accountant and your tax support and all that stuff a lot of whether or not your acquisition is going to be successful is based on the seller.
00:28:54.931 --> 00:28:58.675
As a gentle reminder, the seller literally hired every employee at that company.
00:28:58.675 --> 00:29:03.182
The seller literally sold every customer that that company has ever worked at.
00:29:03.182 --> 00:29:06.673
Even if they're on a beach in Bora Bora, even if they seem like they're out of the picture, they still have a massive impact on the company.
00:29:06.642 --> 00:29:14.300
And a little bit of a non sequitur, that's actually a really key difference between this and real estate, for example, right?
00:29:14.122 --> 00:29:19.920
Like this isn't like self storage where not to pick on that in particular, but you know, certain types of real estate where once the seller is gone, you can kind of figure it out.
00:29:19.920 --> 00:29:25.192
and there's not that much impact from them as long as they weren't committing fraud or something, right?
00:29:25.192 --> 00:29:26.317
It's really different.
00:29:26.317 --> 00:29:29.160
These companies aren't turnkey, even if the seller wasn't that involved day to day.
00:29:29.160 --> 00:29:30.259
They have a ton of influence.
00:29:30.259 --> 00:29:32.601
So you've got to really make sure that seller relationship is right.
00:29:32.601 --> 00:29:36.932
My number one piece of advice for things that people forget to do.
00:29:36.932 --> 00:29:41.028
And it's like I'll tell people this and you it's no big I get it.
00:29:41.028 --> 00:29:42.035
funny, then, know, deal.
00:29:42.035 --> 00:29:52.671
Searchers get busy, but four months later, searcher will find a deal and I'll ask them if they did this thing and they'll be like, I oh, totally forgot.
00:29:52.671 --> 00:29:53.529
Thanks for the reminder.
00:29:53.528 --> 00:29:58.875
So Mel, as soon as you sign your LOI background, check the seller like that day, right?
00:29:56.271 --> 00:30:04.502
Because if there's some big red flag, the seller went to jail 20 years prior for fraud, it doesn't matter how great the multiple is.
00:30:04.502 --> 00:30:06.500
That's not a buyable business.
00:30:06.519 --> 00:30:08.186
A little shout out to Ethos Risk.
00:30:08.186 --> 00:30:11.335
Ethos was acquired by a searcher, Micah Smith, several years ago.
00:30:11.335 --> 00:30:12.875
I've used them a lot.
00:30:12.875 --> 00:30:15.018
I've never had an issue where they missed something.
00:30:15.018 --> 00:30:19.074
I've used them a I've never had an issue where they missed They're quite lot.
00:30:19.173 --> 00:30:19.921
expensive, something.
00:30:19.820 --> 00:30:21.788
$700 as of this moment.
00:30:21.788 --> 00:30:29.980
But generally, I'm a big fan as a search investor for paying up for quality because again, we can't afford to get it wrong.
00:30:29.980 --> 00:30:36.359
Investors might lose a little bit of money, but from the point of view of the searcher, it's catastrophic on their life.
00:30:36.359 --> 00:30:40.047
So just generally try to pay up for quality.
00:30:40.146 --> 00:30:41.952
Ethos does a great job.
00:30:41.853 --> 00:30:46.571
The day you sign your LOI, pay the$700, use Ethos, make sure there's no problems there.
00:30:46.571 --> 00:30:56.775
So there's the tactical stuff like that, like background check the seller, but just generally over the course of diligence, 90 days in the post-LOI period, just make sure that there's not any weird signals from the seller.
00:30:56.775 --> 00:31:07.400
Make sure this is someone who's got integrity that you're dealing with and just seems like someone you wouldn't mind having a business relationship with over the next several years.
00:31:07.500 --> 00:31:12.332
Because again, they have a ton of influence.
00:31:12.332 --> 00:31:16.644
all other people at every stage of the process.
00:31:16.644 --> 00:31:18.967
Just one quick follow up.
00:31:18.967 --> 00:31:23.246
Why eat those over other background checks?
00:31:20.663 --> 00:31:25.519
Is it just that they uncover more than others would?
00:31:23.246 --> 00:31:26.710
I'm a massive homer for search fund acquired businesses.
00:31:26.710 --> 00:31:27.549
than others would?
00:31:27.549 --> 00:31:29.930
Man, I'm a massive homer for search fund acquired businesses.
00:31:29.930 --> 00:31:38.518
If I ever have the opportunity to buy something from a search required business, even if it's more expensive and not as good, I'll do it basically every day.
00:31:38.518 --> 00:31:45.048
So it's nice because Ethos does, and it's like part of the reason, and then folks who are search adjacent, right?
00:31:43.481 --> 00:31:46.903
It's part of the reason I think our communities really embraced people like August Felker.
00:31:46.903 --> 00:31:53.527
So just generally, whenever I have the opportunity to support a searcher-led or searcher-required business, it's kind of a no-brainer.
00:31:53.527 --> 00:31:55.490
And Ethos does this thing, right?
00:31:55.490 --> 00:31:56.599
And I've used them for so long.
00:31:56.599 --> 00:32:00.683
I also am just a big believer in the quality of the product.
00:32:00.683 --> 00:32:08.940
I've never worked with a searcher that used an ethos background check that had where there was like a miss and post-close, we were like, what the heck?
00:32:08.935 --> 00:32:14.734
Like, what was the point of paying several hundred dollars for a background check if you missed this important thing?
00:32:14.710 --> 00:32:15.688
So yeah, there are definitely cheaper background check providers out there.
00:32:15.614 --> 00:32:16.792
But again, like for me, it's worth paying up for quality.
00:32:16.893 --> 00:32:21.519
And like, yeah, and also it's just nice to support a searcher part required business, right?
00:32:21.519 --> 00:32:31.756
Yeah, and I think there's always something to be said to work with a business that's used to playing within the domain that you're working in and has that expertise.
00:32:31.655 --> 00:32:32.387
Also true, exactly.
00:32:32.387 --> 00:32:35.048
Also you have taken up enough of your time.
00:32:35.148 --> 00:32:36.644
Maybe just one last question.
00:32:36.644 --> 00:32:44.460
Do you have any message you'd like to share with the audience or a sentence or two about your life mission?
00:32:41.928 --> 00:32:44.460
What would it be?
00:32:44.333 --> 00:32:44.460
Yeah.
00:32:44.339 --> 00:32:44.413
Thanks for asking, Nick.
00:32:44.368 --> 00:32:44.460
Small business is inherently personal, right?
00:32:44.423 --> 00:32:44.460
Almost by design.
00:32:44.442 --> 00:32:54.056
You know, when I first started working with small businesses in 2010, what I came to learn quickly is that small businesses are people-sized businesses.
00:32:54.141 --> 00:32:56.603
They're businesses where the trajectory of the company is fundamentally altered, can be fundamentally altered by the addition of one key person.
00:32:56.603 --> 00:33:06.711
And the impact, as you measure the impact of those businesses, it's primarily based on the lives of the people it impacts, the individual people who work at that company and the individual people who are the customers of that business.
00:33:06.711 --> 00:33:12.888
And when you think about it from that lens, there's this really interesting macro trend that's happening in our country that ties directly to that, right?
00:33:12.888 --> 00:33:15.252
So it's called the silver tsunami.
00:33:15.252 --> 00:33:18.969
Many of your listeners will have heard of it before.
00:33:18.969 --> 00:33:24.952
Two thirds of jobs created in the United States in the last 25 years were in American small business.
00:33:24.952 --> 00:33:27.758
50% of American small businesses are owned by baby boomers.
00:33:27.758 --> 00:33:29.653
The youngest baby boomer is 60.
00:33:29.554 --> 00:33:38.420
Our country is about to undergo this massive change where there are all of these small businesses that employ millions and millions of Americans, and they need to find a new home.
00:33:38.420 --> 00:33:42.155
They need to find someone to run them.
00:33:42.155 --> 00:33:50.833
And my where someone will be working with us because the owner died and someone inherited the business and doesn't know what to do to be able to keep the lights on and continue to employ these people at the company.
00:33:50.742 --> 00:33:51.730
The business had no transition plan.
00:33:51.829 --> 00:33:58.172
The owner was constantly thinking, I'll figure it out next year, I'll figure it out next year, and eventually next year never came.
00:33:58.172 --> 00:34:11.050
So it's a really serious problem when we don't have a solution for who's gonna own these businesses after the baby boomers retire or pass.
00:34:11.025 --> 00:34:16.985
And in addition to just feeling deep personal mission for working and supporting these individual high potential entrepreneurs as they transform their lives by acquiring and running small businesses.
00:34:16.985 --> 00:34:22.871
One thing I love is that what we're doing as searchers and search investors plays a tiny role in solving that problem, right?
00:34:22.871 --> 00:34:24.434
role in solving that problem, right?
00:34:24.434 --> 00:34:38.896
And it's how cool is that, that the work that we do not only transforms the lives of the CEOs and owners of these businesses, the new owners, the searcher entrepreneurs who are running these businesses, but also helps playing a small role in fixing this massive macro problem in the United States, our country's about to have.
00:34:38.996 --> 00:34:40.864
So it's a pretty special thing.
00:34:40.864 --> 00:34:49.682
And I think we don't take the opportunity enough as an ecosystem to just think about that, that impact that we're having, besides just generating a lot of people, a lot of money or something like that.
00:34:49.682 --> 00:34:51.260
So thanks for the question.
00:34:51.260 --> 00:34:57.873
It is really fun to talk about the mission and some of that stuff that's behind the work that we do as a community.
00:34:57.871 --> 00:34:58.119
Amazing.
00:34:58.159 --> 00:34:59.693
Well, thanks so much for your time.
00:34:59.693 --> 00:35:01.139
It was an absolute pleasure.
00:35:01.139 --> 00:35:01.806
One last question.
00:35:01.806 --> 00:35:03.340
How can people reach me on Twitter.
00:35:03.340 --> 00:35:05.016
My handle is at Feta Fund.
00:35:04.989 --> 00:35:11.563
You can join 55,000 other people who are excited and passionate about search and entrepreneurship.
00:35:11.563 --> 00:35:13.675
And I also post on LinkedIn.
00:35:13.675 --> 00:35:17.644
So Mill Jarawala, you can find me on there by my name.
00:35:17.644 --> 00:35:20.804
And the fund once again is called Feta Fund, F-E-T-A-F-U-N-D.
00:35:20.804 --> 00:35:27.989
Feel free to reach out to us from our website and would be thrilled to get to know you.
