🔍 Diego Cuenca: A Unique Path To Owning A Business

Claremont entrepreneur Diego Cuenca shares his knowledge of search funds, what makes them different from startups, and how he acquired Ticketech and led the company to an exit

Diego has spent his life working with family businesses and privately-owned companies. Prior to starting his own search fund Kata Capital and his work at Ticketech, he worked in different operations, sales, and investment roles at ALPS Advisory in Hong Kong and Bernstein in San Francisco. Diego received his BA in Economics-Accounting from CMC and an MBA from Columbia Business School. He’s also a retired MMA competitor and avid martial artist, and he currently resides with his wife and two boys in Great Neck, Long Island, NY.

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After receiving your MBA from Columbia, you then launched a search fund to acquire TicketTech. Can you give our readers a quick download on search funds and why you think they’ve grown in popularity as of late?

A search fund is a vehicle that allows an entrepreneur a unique path to owning and managing a business without having to found the company yourself. In a traditional search fund model, you would:

1) First, raise initial funding to cover things like travel and salaries as you go about looking for a target acquisition.

2) Second, you spend time in deep research, searching for a specific business you want to target and acquire.

3) Third, if you successfully find a target company, you then raise additional capital for the acquisition.

4) Finally, after acquiring the target company, you then operate and run that business as CEO for an undefined amount of time until a potential exit.

There are many models of search funds available to entrepreneurs today, as well as sources of capital, but I believe there are really three reasons why the search fund model is more popular now than it has been in the past:

1) Several generations of search fund entrepreneurs have now had significant financial outcomes and attractive financial returns. According to the 2022 Stanford Search Study, returns from all search investments since 1986 have aggregate pre-tax returns of 35.3% IRR and 5.2x ROI.

2) Over recent years, search fund models have been shown to have a greater chance of success than starting your own business from scratch or going the more traditional startup route. Plus, the ideal acquisition targets for search funds typically have a long history of recurring revenues and profitability, making it easier to run and less risky once you’re in the CEO role.

3) Available capital and target investors continue to grow as baby boomers retire and more capital enters the space due to the attractiveness of the asset class.

What initially attracted you to pursue search funds rather than something else in startups or venture capital?

I always wanted to manage a business and had many entrepreneurial influences growing up that pushed me toward that direction. Both of my parents had always worked in their family businesses, and my two oldest brothers started companies while I was still in elementary school. My grandfather was also one of the pioneers in Philippine infrastructure, and I grew up hearing stories of how he built his company.

Prior to business school, I had also worked in financial services for about a decade and had just quit martial arts competitions — which were a big part of my life. It was time for a new challenge. I knew it was time to manage something on my own that could scale.

I started simultaneously exploring the startup path and search funds — taking internships and coursework around both, but ultimately, I felt a search fund was the better path for me post-MBA. I knew it would allow me to mitigate some risk and scale a business that already had reached product-market fit. That said, today, I am still excited about growing companies — search fund, startup, PE-backed, or otherwise. I wouldn’t rule out starting another business in the future.

Once you had raised money for your search fund, what was your process for evaluating companies to acquire? What was the ‘aha’ moment or insight that made you comfortable acquiring Ticketech?

Once the funds were raised, our primary search strategy was industry driven. I’d have a thesis on a particular industry, and my team of interns would scour that industry for leads on a proprietary basis (cold calling, email cadences, etc.). We also used brokers opportunistically — which I don’t think was very productive in retrospect. Ticketech was a deal that was actually referred to me by one of my investors, and there were three reasons why I thought it was a great fit:

1) Parking may not be the flashiest industry, but I quickly understood how the business made money and how it could grow. I also found the industry to be fascinating and ripe for technological change.

2) The company was also geographically close, so I could conduct diligence quickly and easily with one of my board members, Clayton Sachs, who also lived near the business.

3) There was definitely a genuine need for new leadership and processes, but the business model was sound, and the product was sticky.

What was the biggest unexpected challenge you encountered after purchasing TicketTech?

COVID impacts and competitive pressures immediately following the close were much higher than expected. Shortly after we purchased TicketTech, there was a surplus of new, well-funded entrants in the space to compete with. Also, only a year after the close, COVID hit. We had to act quickly to ensure we remained competitive and that we could navigate the pandemic.

By necessity, we had to build a scrappy culture that innovated quickly and efficiently. I am happy to say we were able to meet that challenge and introduce many new innovations in a short period of time, not only in our product but in how we serve customers. This included digital ticketing, integrated payments, and automatic vehicle recognition. We also adjusted pricing to better fit the recurring nature of our business (and our client’s business) and invested in revamping customer support and implementations.

After three years of running TicketTech, the business was acquired by Cloud Parking Leader FLASH. What was your biggest learning as a CEO going through an acquisition process?

Acquisitions take much longer than you think, and you’ll have to work harder than ever to continue running your business during the process. Keeping the lights on and continuing to grow recurring revenue while managing a sale is extremely tough. My best advice is to hire great advisors, leverage key team members, and stay focused on growth.

We vetted many providers before selecting a banker to run our process, and he was instrumental in guiding me through my first time selling a company. While the transaction was confidential to most of Ticketech, our management team played an instrumental part in the diligence and post-transaction planning. We operated the business as if we were not selling the company and without changing our business process/meeting rhythms or goal setting.

What’s next in parking? Where is the industry headed?

I’m very excited about what we are doing at Flash and the evolution of parking. Parking environments will have to play a massive role as the world adopts electric vehicles, connectivity increases, and more mobility use cases come to market. Ultimately, the use of these spaces will change, as well as how they are marketed, reserved, accessed, and priced.

At Flash, we provide solutions that allow our clients to participate in this change, reduce friction, and ultimately drive revenue and NOI. I’m most excited by our technologies that allow parking operators to access multiple demand channels, understand their various customer segments through data capture (online and in the garage via computer vision), and integrate EV charging seamlessly into the parking stay. Ultimately, this creates a better experience for the driver and the operators we serve.

What are the most valuable resources you recommend for those interested in learning more about search funds?

Stanford GSB has many resources online, as does Harvard. There are also multiple conferences you can attend. The Columbia community is growing as well, and there are several podcasts you can listen to on business operations and acquisitions. Some of my favorites include In The Trenches, 50x, and Business Breakdowns. If you are getting serious, I’d start cold-calling searchers and operators. If you use google or LinkedIn, it’s pretty easy to get started finding people in the community.

What is the best way for the community to be in touch and follow your work?

Feel free to follow me on LinkedIn or reach out to us at ticketech.com or flashparking.com — Id love to hear from real estate owners, operators, and potential integration partners.

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