PODCAST REVIEW: EP 102: Selling to a Search Fund with 37th and Moss
Featured this week 11–7–23 in TheHub Mainstreet M&A news and events:
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The Hub Short Take:
Nick and John discuss the search fund model and how they operate as entrepreneurs looking to acquire and operate businesses. They explain the origin of the name 37th in Moss and their focus on B2B services and technology companies. They emphasize the importance of building relationships with business owners and being transparent about their intentions. They also discuss the benefits of long-term hold strategies and the value they place on the existing team within a company.
Key Takeaways:
- The search fund model has grown rapidly in recent years, with different approaches and structures.
- 37th in Moss is a traditional search fund that focuses on B2B services and technology companies.
- Building relationships with business owners and being transparent about intentions is crucial.
- Long-term hold strategies allow for sustainable growth and compounding wealth.
- The existing team within a company is valued and relied upon for continued growth.
Quotes:
- “We’re operators with entrepreneurial experience, but we’re also folks that have experience with financial services.” — Nick Smith
- “We want a business that has a good team, and we don’t intend to introduce change to the team.” — John Washington
- “Getting your business ready for sale can maximize its value when the eventual transition happens.” — Nick Smith
- “Understanding unit economics helps make strategic decisions that benefit the business.” — John Washington
The Guest:
Nick Smith and John Washington are the founders of 37th in Moss, a traditional search fund focused on acquiring B2B services and technology companies. They have a background in software engineering and entrepreneurship, and they are passionate about small business ownership and operation.
The Host:
The How to Sell a Business Podcast combines 30 years of exit planning, valuation, and exit execution working with business owners. Ed Mysogland has a mission and vision to help business owners understand the value of their business and what makes it salable.
The Article
The Defenders of Business Value: Unveiling the Search Fund Model
Welcome to another episode of The Defenders of Business Value podcast! In this episode, They dive into the world of search funds and explore how they operate. The guests, John Washington and Nick Smith from 37th in Moss, shed light on the search fund model, its benefits, and how it can be a viable path for business owners looking to exit.
The Rise of Search Funds
The popularity of the search fund model has grown rapidly in recent years. What started as a handful of Stanford and Harvard MBA graduates raising money from a few investors has evolved into a thriving ecosystem with many different models. There are two main types of search funds: self-funded searchers and traditional search funds.
Self-funded searchers save up their own money to support themselves during the search process, typically for up to 24 months. They then secure an SBA loan to finance the acquisition. On the other hand, traditional search funds raise capital in two rounds. They have the support of experienced advisors from the beginning and build deep relationships with investors throughout the search process.
The Unique Approach of 37th in Moss
John and Nick’s search fund, 37th in Moss, falls into the category of a traditional search fund. They emphasize the importance of partnerships and have a strong background in software and B2B services. Their goal is to find a business to operate and work closely with the existing team. They believe in the power of long-term holds and making decisions that yield sustainable growth over time. They value stability, profit, and growth, and aim to maximize the value of the businesses they acquire through patient and strategic decision-making.
Building Credibility and Establishing Trust
One common concern among business owners is how to determine the legitimacy of searchers and establish trust. John and Nick emphasize the importance of delivering industry insights and demonstrating a deep understanding of the business and its challenges. They conduct thorough research on the industry and the company before reaching out to business owners. By showing their knowledge and genuine interest, they aim to differentiate themselves and build credibility. They also recommend validating a buyer’s access to the necessary equity to close a deal, ensuring they have the financial capability to follow through.
The Role of Time in the Search Process
The search process can be time-consuming, and business owners often wonder how much time they should invest in engaging with searchers. John and Nick acknowledge that business owners are busy and have many responsibilities. They believe that a clear understanding of goals and a proactive approach to preparing for a transition or succession is crucial. By starting early and taking small steps to get the business ready for sale, owners can maximize its value when the time comes. They also recommend seeking advice from experienced attorneys and accountants to navigate the legal and tax aspects of the process.
The Importance of the Team
Business owners often worry about what will happen to their team during a transition. John and Nick assure owners that they value the existing team and want to work closely with them. They rely on the team’s expertise and knowledge of the business to guide its continued growth. They emphasize the importance of stability, profit, and growth, and aim to create a seamless transition that benefits both the business and its employees.
The Power of Unit Economics
Understanding unit economics is crucial for business owners looking to maximize the value of their business. John and Nick highlight the importance of knowing the financials and having a clear grasp of the business’s unit economics. This knowledge helps inform strategic decisions, capital structure, and growth funding. By investing in accounting and finance infrastructure, owners can gain a deeper understanding of their business’s financial health and make informed decisions to drive growth.
Conclusion and Future Outlook
The search fund model offers a unique path for business owners looking to exit their businesses. It provides an opportunity for entrepreneurs to step into the role of an operator and continue the legacy of a successful business. The rise of search funds and the availability of resources and databases have made it easier for searchers to find potential acquisition targets. However, it is essential for business owners to carefully evaluate searchers and ensure they align with their goals and values.
As the search fund ecosystem continues to evolve, it is crucial for business owners to stay informed and seek advice from experienced professionals. By understanding the search fund model and its benefits, business owners can make informed decisions about their future and maximize the value of their businesses.
In conclusion, the search fund model offers a viable path for business owners looking to exit their businesses. By partnering with experienced operators like John and Nick from 37th in Moss, business owners can ensure a smooth transition and maximize the value of their businesses. The key is to establish trust, understand unit economics, and start preparing for a transition early. With the right approach and guidance, business owners can confidently navigate the search fund landscape and secure a successful future for their businesses.
Join us next week as we continue to sift through the wealth of information out there, helping you understand what it takes to excel in today’s dynamic business environment.
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Written by the team at How2Exit.com
