Learn how to start a search fund or acquisition vehicle in 10 easy steps.
So you want to buy a business, but you don’t know where to start. Follow this step-by-step guide to discover the tactics or methods I used to start Bardo Capital, an investment firm seeking to acquire B2B businesses with $1M to $3M of annual profit.
Unlike a lot of other guides and posts I’ve seen, I’m providing you a step-by-step for getting the foundation right on your quest to acquire a company whether you are conducting a self-funded search, traditional search fund, or independent sponsor model.
With that said, in this blog post, you will learn how to start a search fund in 10 steps.
This guide may help you clarify your ‘why’ and give you ideas to think about in your own search. While there wasn’t a significant amount of content and resources available in 2017 when I acquired my first real SMB business at 27 years old. I had many entrepreneurial experiences prior to that including starting and buying inventory of a foreclosed hobby shop.
If you are struggling with this, click here to go to list of search funds on the Axial deal platform. I took at look and immediately found things that were terrible and a few great takeaways. And some of them are atrocious.
1. Determine if this path is the right fit for you
If you’re here, you probably already know what a search fund is and that can be an incredibly fun, lucrative, and frightening career path. Please take your time determining what path is right for you (self-funded search, traditional search, independent sponsor).
If you’re a newbie, read the 101 materials from Stanford including the Search Fund Primer as well as the most recent Search Fund Study. Join and read thoughtful posts from users on Searchfunder, an online community specific to Search Funds of all types. Talk with someone who is currently operating a business after conducting a search.
I could go into my own personal thought process in 2017, but we’ll leave that for another time.
2. Define your ‘why’, your investment criteria
Some questions you need to answer to develop this fully:
- Size: What size companies do you want to pursue (min and max of revenue and profit/cashflow/EBITDA)?
- Geography: What parts of the country are you open to?
- Industries: Are there any industries you want to specifically target or avoid?
- Funding: How do you plan to fund this acquisition, in terms of debt, seller financing, earnouts, and equity?
- Operations: Do you want to operate this company as CEO or do you plan to hire this role?
- Leadership: Are you a visionary (CEO) or implementor (COO)? (Click here for a quiz to determine which EOS role you are)
- Expenses: Do you need a salary during your search to support you or a spouse?
- Timeline: How long will your search timeline be and how strict will you be with that timeline?
- Network/Support: Who will provide insight, support, and value to you as a human being during the search (spouse, family, friends, investors, entrepreneurs, Mastermind)
- Fears: What fears do you have? Have you done things to mitigate and or address those fears head-on?
- Purpose: What drives you? Is it the control, the success, the money? Some reasons are much better than others. Imagine that your initial purpose goes away entirely, are you still motivated to grind away to make the best of your situation?
3. Whiteboard your website copy
Your website copy is a regurgitation of your ‘Why’ but in a format that most people (sellers, brokers, etc) will come to learn about you for the first time.
Take a look at this list of search funds on the Axial deal platform to give you inspiration on structure and your personal design preferences. The bar is not very high, so spending any amount of time thinking about your website copy will put you at an advantage compared to others.
A first positive impression from someone viewing your website can be a game changer. Your goal is to communicate your message and vision to the broader world of sellers, brokers, and your network.
Start off with the 4 simple pages:
- Home
- About
- Criteria/Thesis page
- Contact
As an alternative, this 4 page structure could be truncated into one scrolling page if you prefer that style and do not need to be separate pages.
Other pages I came across that you could consider adding: Blog, Why Us/Me, Deals.
Open up a Google Doc and start writing and re-writing. See below for an example of website copy outline:
4. Choose your firm or fund name
The name of your firm or fund name is something you can spin your wheels on. Don’t overthink it. I sure did.
I did a thorough review of names across the financial sector including private equity funds, family offices, and search funds. They’re mostly boring and undifferentiated, which I think is OK. There is a Hedge Fund name generator that you can play around with if you really want to just blend in with the crowd.
I think that if you are incredibly focused in your search in either industry, geography, or business model type, you may intertwine those. A good example is Manufacturing Succession Partners who clearly identifies both the target industry and type of buyer.
Jim Sharpe also wrote a helpful blog post called Selecting your search name which has some good points. and I don’t really agree with. He pretty much says names should focus on what sellers want.
My criteria:
- I can easily say the name easily over the phone
- I have a personal affinity to the meaning and foundation of the name
- Google search for the name doesn’t turn up weird results, ideally no other financial firms
- Not trademarked
- Desired entity name is available in the state I am registering
- Flexible to various types of investment (I invest in passively in self-funded searchers and real estate)
When it comes down to it, choose a name that works for you and don’t look back.
5. File the LLC articles of organization in your preferred state
I used IncFile to file my articles of organization for the LLC. I found the service easy and was actually no cost except for the mandatory $300 filing fee (Texas specific). It also includes one year of registered agent services (a place where someone can serve papers and notices to your entity). IncFile does attempt to sell you extras, but none of it is really needed. You can also file the articles of organization directly on the state regulatory website in most states.
6. Get your IRS federal tax ID / EIN
After you have filed your articles of organization with the state you are registering the LLC, you can now apply for an EIN. Application details are located on the IRS website. After all validations are done you will get your EIN immediately upon completion. You can then download, save, and print your EIN confirmation notice (CP575).
7. Buy a domain and setup web hosting
I recommend Bluehost as the best and cheapest WordPress focused hosting service. There are many others and it’s not expensive ($4.95 / month). I’ve hosted previously on Flywheel, Wix, and Godaddy. Bluehost was my preferred choice because I’ve learned I just want to keep it simple for the cheapest price. A new website with Bluehost also includes a year of a free domain (www.yourcompanyname.com), which is a nice add-on to get you to sign up.
WordPress is my preferred website creation tool: lots of low-cost developers, free quality templates, SEO friendly, incredibly flexible, and low cost to host and maintain. I do acknowledge it may be too technical for some folks, but I think the capabilities can create a lot of value. I installed the Astra wordpress theme. It is well supported, is modern, and has many free starter templates.
Don’t forget to setup Google Analytics on your website regardless of your hosting and platform choice. It’s free, and you can now track visitors coming to your website. If you decide to get fancy down the line, you can setup goal conversions to optimize your website and identify where leads are coming from if you do any paid advertising (like Facebook, Google, postcard campaigns).
7. Setup Google Workspace
Google Workspace is probably the best product on the market. Low cost for the Business Starter package at $6 / month and easy to setup, incredible functionality. Sign up for an account, then update your
8. Create a logo
Logo creation is pretty easy and you have many free and paid options. Google is your friend, find what works for you and your vision. You can choose a custom route (hire someone on fiverr) or a logo/brand generation service. I used Looka Logo Maker and was impressed at the capabilities and customization possible through their platform. They also provided me with a guide brand and color scheme based on the colors I chose for my logo. I paid $65 for the entire logo file output (16 outputs for both for print & web)
To find my likes/dislikes, I just looked through the list of Axial companies. The goal of a logo is to not look embarrassing. You can always change it later.
9. Create the website (do this yourself or hire someone)
I’ve created a few websites in my time and I enjoy doing it myself. I will usually hire someone professional at a later time to do a theme design when I feel there is a need to go custom. You should probably not be spending a significant amount of time on this.
The website should be clear, concise, and logical. The bar is not high here and you do not have to be fancy. It’s OK to use a stock template. The information is what matters. If you need a fancy website, go ahead, but it will ultimately come down to vanity and most learn that a website itself that has not investment in content will not lead to many, if any, leads. Your website is basically a resume utilized by brokers and sellers.
I wanted to create a blog on my website because I do have some interesting topics I want to cover and think owners and entrepreneurs would find them valuable. A blog is probably *definitely* a waste of time if your sole focus is to acquire a business, but I enjoy learning and talking about entrepreneurship with others. I’d also like to build up my credibility in both the SMB and investing space as I’ll be doing something pertaining to acquiring, operating, and growing businesses for the long-term.
10. Start a business bank account
You can open a bank account anytime after you have your articles of incorporation filed and have gotten an EIN (Employer Identification Number) from the IRS.
I’ve used a number of business banking products including Bank of America (terrible), Frost (good), Wells Fargo (ok), and Chase (great). If you don’t have a bank in mind, I’d check out Mercury. Mercury seems to be the bank of choice for a lot of entrepreneurs and operators I know and has so far worked out well for me.
If you want to support local, find a business-friendly business bank and make sure they have modern tools to access your account information and conduct regular banking activities without additional hassle. A local banking relationship may be valuable when you need an AR credit line, your financing a work vehicle, or acquiring a competitor.