Search fund accelerators and their counterparts see hundreds of wannabe entrepreneurs annually. Here’s how to get in the door — and take root.
Rania Missoumi officially joined Switzerland-based Novastone Capital Advisors (NCA) in February this year to embark on her latest quest: to acquire and run a health-care services company.
The onboarding process was thorough and rigorous, said Missoumi, who initially reached out to Novastone via LinkedIn. A firm that runs an “entrepreneur through acquisition” program, Novastone required numerous interviews, and Missoumi was tasked with both intense preparation and soul searching. Her hard work paid off and she is now Novastone’s first North American entrepreneur to join their team. Once Novastone selected her, together they raised search capital, and are now in the process of assessing deal targets.
“I’m leading it,” Missoumi said of the acquisition search. “I get support from NCA along the way and they have certain checks and balances.” Once a deal is completed, Missoumi will take the helm as CEO.
Novastone and other search fund accelerators — or firms that operate similarly to accelerators with a slightly different twist — are approached annually by hundreds of eager and intelligent searchers, who are looking to buy and operate a small to midsize business but desire financial, structural, and intellectual support. “We probably talked with 700 searchers over the last two years,” stated David Slenzak, managing director at Broadtree Partners, a virtual search fund accelerator that takes on three to six searchers each year. “And the people we hire will probably have gone through 20 interviews.” This competitive process can last as short as three months and as long as three years, he said.
But accelerators and their counterparts can only do so many deals, and the vast majority of searchers are turned away, usually because they are not a fit for the model. Those who do impress these firms and their cadre of investors must meet demanding criteria in order to become a CEO through acquisition. So searchers must not only be prepared before they reach out for help, but they must self-evaluate and determine if an accelerator-type model is the right way to go. Otherwise, they spin their wheels and waste precious time.
“It’s a long and thorough courtship that involves mutual evaluation,” noted Brian O’Connor, founder and managing partner of NextGen Growth Partners (NGP) in Chicago. “We think about this as a career-long partnership more than we do a job interview.” NGP bills itself as a private equity firm, since it has a committed capital fund, but it creates partnerships with searchers and allows them to utilize the firm’s tools, resources, advisory networks, and deal and development teams. Today, the firm has seven entrepreneurs in residence pursuing various opportunities under its current $100 million fund. “Our model is a merger of what we believe to be the best pages out of the private equity playbook and entrepreneurship through acquisition,” he said.
Most accelerator-type firms, per the people who run them, welcome any searcher who calls. But once in the door, searchers must persist through numerous interviews with various people — founding partners, investors, other in-house searchers — though the process varies by firm. “We try to knock out interviews pretty quickly so we can spend a lot more time on a series of discussions around goals and fit and alignment,” stated Denver-based Drew Gottenborg, founder and managing partner of Spur Acquisitions. “Oftentimes after those first conversations, it can be apparent to one party or both that they are a better fit for a different group or model.” Spur launched in 2019 with three searchers, and has completed deals for each of those initial searchers in the manufacturing, e-commerce, and education technology sectors. It is in the process of bringing on six additional searchers this year.
Most accelerator-type firms look for basic things in their would-be entrepreneurs: Intellect, of course, and an MBA or equivalent degree from a prestigious school like Stanford University; leadership ability, and the talent to juggle multiple tasks; people and persuasive skills; and an understanding of the accelerator or CEO-through-acquisition model. “We’re looking for people who want to be entrepreneurs, operators of companies, CEOs of businesses — not private equity fund managers,” Slenzak said.
O’Connor labels NGP’s criteria the “4H Club” — heart, hunger, hustle, and humility. “Is their heart in it? Are they hungry? Are they ready to hustle? Because running a small business is about wearing a lot of hats. Do they understand and appreciate their strengths, but also understand their weaknesses? There’s no room in these small businesses for egos,” he said.
“They need to come to us with a compelling background, a compelling thesis, a compelling reason why they are uniquely qualified to not only find and become a preferred acquisition partner and business owner, but why they are uniquely positioned to create value in that business,” O’Connor added. Those who fail to do that are nicely shown the door.
Beyond that, though, accelerators and their counterparts look for things ingrained in the searchers’ personalities, like integrity and self-sufficiency, and the ability to empathize with sellers, many of whom have built their businesses from the ground up and are emotional about the sale. Missoumi, who has a private equity background and M&A experience, saw that “emotional attachment” first hand, and now brings her compassion to the table. “Our pitch is not so much, ‘We can pay the highest valuation,’ but much more, ‘I’m going to be the operator, and I want to take all the work you put into developing this business to the next level,'” she said.
Those few searchers who join an accelerator-type firm will have access to capital, a network of highly skilled investors, and possibly inbound acquisition opportunities through established broker relationships. “One of our key missions at Spur is to allow our operating partners to spend as much time as possible evaluating potential companies for acquisition,” Gottenborg said about searchers.
What’s more, searchers who join these firms can utilize technologies, processes, and systems in place to source deals and conduct due diligence. They may receive training or attend internal boot camps. They can tap financial and negotiating expertise. And they can commiserate and gain advice from in-house searchers already in the trenches, who have been there, done that. If a seller has a change of heart after a letter of intent has already been issued, for example, “It’s really nice on that day to have friends and colleagues and partners that can help you dig out of the dump,” O’Connor said.
An accelerator doesn’t necessarily shorten the deal search phase, which typically runs up to two years, but increases the probability of a better deal, better governance, and a better outcome, Slenzak summarized.
Before contacting a search fund accelerator or similar firm, Slenzak advised, searchers should take an “introspective journey” into their own psyches, and determine if the accelerator or similar model is a fit for what they truly desire. They need to dig deep, examine their priorities and goals, and understand this model before reaching out to prospective partners. “If we back somebody where search wasn’t the right model of entrepreneurship, that’s where we fail,” he said.
Searchers should also network and talk with others in the search-fund realm prior to reaching out. Missoumi spoke with over 30 people — investors, searchers, even a lender — before choosing her future path and contacting Novastone, she said.
Searchers should also ascertain their comfort level of independence versus control. Those who partner with accelerators or similar firms inevitably give up some autonomy, since investors “are going to vote with their checkbooks, and are looking at things in line with their mandate where they see value and opportunity,” O’Connor said. “We very much roll up our sleeves and get involved in the businesses and the next chapter of the growth evolution post-acquisition.” In other words, nonconformists may prefer a self-funded search, or one where they can seek out all of their own investors — and as such, retain more control over the process.
Missoumi, who thought long and hard before choosing to partner with Novastone, advises searchers to ask this question: “How much do you want to do your own way versus how much do you want to risk?” And once you figure that out, she said, “then it helps direct you to where you should go.”