Announcing the Buy Build Fund

I am pleased to announce the Buy Build Fund. A new acquisition partnership, micro private equity fund formed along with my partners Cliff Sirlin and Kingchih Fan.

Entrepreneurship is all about high-growth startups, right? Take your genius idea, clear out your garage, raise some angel/VC capital and you are off to business stardom.  While the promotion of billion dollar tech entrepreneurship has grown substantially in the past 20 years, the original entrepreneurs — small business owner-operators — are still the vast majority of entrepreneurship successes.  These are not high-profile nor receive the headlines but are the greatest wealth creator in the US economy.

In the past 30 years, a variant on this small business owner-operator model has emerged: Entrepreneurship through Acquisition (ETA).  ETA takes an SMB that has achieved some level of product-market fit as well as financial stability and acquires the company putting a new CEO — oftentimes a newly minted MBA — in place to drive growth and optimization.  Since many SMBs are run as “lifestyle” businesses, the owner has little incentive to grow them beyond what meets their personal financial needs.  This has a dual effect of a) suppressing acquisition multiples (typically 3-6x EBITDA) and b) creating ample opportunities for immediate financial impact under professional management.  All this adds up to an attractive asset class which, over the past 10 years, has achieved 3x the returns vs. traditional mid-to-large private equity (PE) and venture capital (VC).

Interestingly, even with this historical performance, ETA is off the radar of institutional investors.  Why, you might ask? Because you have to clean-up and operate these businesses and, on the outside, it does not appear to scale. Those in the search fund industry know otherwise. Even as more search funds have come online in the past decade, there is still ample room to play.  There are ~7m non-sole proprietor small businesses in the US.  In the next decade, as the Baby Boomers retire, over 4m SMBs will seek new ownership representing $10.8 trillion in asset transfer.

Thus, there is an alternative to the corporate ladder and startup-in-a-garage approaches to realize your dream of running a company: acquire some else’s successful SMB and grow it.  Whether your goal is to grow and exit at the next level (typically 8-12x EBITDA) or run it in perpetuity, there are several models that work for investors who understand the opportunity.

We are seeing our first set of Acquisition Entrepreneurs so if you think this might fit your interests, please reach out. We are also still accepting investors to fill out the fund.