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Search Funds

Search Funds. An Overview. What is a Search Fund?. Capital raised to help an entrepreneur to search for and acquire a business The entrepreneur is usually a young MBA Most Search Funds have a 3 to 5 year outlook

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Search Funds

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  1. Search Funds An Overview

  2. What is a Search Fund? • Capital raised to help an entrepreneur to search for and acquire a business • The entrepreneur is usually a young MBA • Most Search Funds have a 3 to 5 year outlook • Investors and principals receive a return after dividends are issued, the company is acquired by another, or an IPO event

  3. Advantages of Search Funds • Offer new entrepreneurs a quick path to capital and owning a small business • Generate significant returns to principals • Investors can serve as advisors to the entrepreneur

  4. The Main Advantage of a Search Fund Is… • The experience provided by the investors • Investors acting as advisors can steer the business and entrepreneur down the right path • Psychic benefit to investors working with young entrepreneurs

  5. Stages of a Search Fund • Stage 1: Raising the Fund • Stage 2: Searching for and Making an Acquisition • Stage 3: Operation • Stage 4: Exit

  6. Raising the Fund • A business plan is created • Principals look to a wide variety of potential investors • Each investor typically purchases one or several units at about $20,000 to $35,000 • Entrepreneurs look for investors who can act as advisors

  7. Searching for an Acquisition • Search by either location or industry • Searching geographically can help a principal logistically, but limits opportunities • Target 2 to 4 industries, taking less time • Generally target industries that are not subject to rapid technological change and are in fragmented geographic or product markets • Searching for a company to buy usually takes from 4-8 months

  8. Making an Acquisition • Each investor is given the right of first refusal on any acquisition • The investment is stepped up in the acquisition round • The business will often sell for a multiple equivalent to 70% to 130% of revenues • If the initial capital is exhausted principals may close the fund or find additional capital

  9. Operation and Exit • Principals recruit a board of directors • Initial investors are often included • Principals create value by improving revenue growth, operating efficiency, or expansion, often in conjunction • Search funds have a 3 to 5 year outlook • Investors receive a return via an acquisition, selling investor equity, or dividends may be issued

  10. Search Fund IRRs to Original Investors

  11. Comparison of Search Fund Acquisitions

  12. Search Funds in Alaska • Working with Native Corporations • Alaska InvestNet • Opportunities for growth • Previous attempts to assist entrepreneurs • Business plan competition

  13. Working With Native Corporations • Opportunities for new entrepreneurs • Structure of native corporations allows for growth and expansion

  14. New Innovative ANCSA 8(a) Business Model Capital Investor Business Opportunity Entrepreneurial Manager Technical and Professional Services Identify and develop entrepreneurial opportunities Provide the entrepreneurial manager with access to opportunities Facilitate access to capital and management expertise YIELD

  15. ANCSA 8(a), LLC • Potential Investors & Participants • Collaborative, non-majoritive LLC Founding ANCSA Corp.(s) Lead Active Capital • Private investors and AIN • Provide & facilitate capital • Identify & capture management expertise • Help identify deal flow • Facilitate 8(a) process • Help identify deal flow • Minimum capital/bonding req’s • Sponsor individuals to develop internal expertise ANC’s with Opportunity Based Core Competencies • Capital in-flow coupled with project-based expertise Board of Directors • 3 member board Lead Active Manager Counsel 3rd Party Experts • Primary deal hunter; identify & validate deal flow • Identify & capture necessary 3rd party expertise • Interface in government procurement • Multiple sub-ordinate active managers in various fields • Performance based compensation • Technical & professional services • Project-specific competencies • Little or no ownership stake • Expertise in 8(a) procurement process • Legal & procedural advice The Projects • SBA 8(a) contracts • OMB A-76 contracts • Focus on profits over revenues

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