Pitching to investors is about attracting them. It doesn´t mean that the founder of a search fund should just accept any investor though. There are many factors to consider. Among others, the capacity (and willingness) of the investor to support the acquisition of the company once it is found.
But in any case, to select investors a searcher needs to attract them first. The founder of a search fund pitches 2 things to investors: himself and the search fund model. So it is common to pitch investors depending on their knowledge of the person and the model.
1.- Investors that know the model and the searcher
The ideal potential investor and the most beneficial for the searcher. A rejection from this type of investor is the toughest to swallow.
Firms or individuals that invest in search funds trust the model and are willing to add more of them in their portfolios. Especially since there are not many search funds out there. If they know you (either from a company or from academia) it just makes their evaluations much easier and faster to perform. In other words, once they’re aware of the opportunity, there is not much the searcher can do to convince them or to disappoint them. They will make their decision pretty soon if the search follows the typical criteria of target companies, agreements, etc.
What should you do with them?
Leverage them. These are the biggest sponsors of the fund. They can help explain the model, reach out to other investors, etc. So you should communicate with them through the funding stage to let them know when they can be of help. They are also the best advisors in all the stages of the fund.
2.- Investors that know the model but not the searcher
You need to sell yourself not only as a searcher but as a potential CEO. These investors know that the model works so it is now on you to show that you can pull it off.
It is worth to note that these investors are more concerned about the performance of the acquired company than whether or not an acquisition is made. They know that the worst that can happen is to buy a bad company and the best that can happen is to buy a company that grows profitably and consistently. So some of the factors that can convince them are the following:
- Experience managing people.
- Experience managing change and/or projects.
- Alumnus from prestigious companies.
- Alumnus from prestigious universities.
3.- Investors that know the searcher but not the model
Whether they know you from school or from a company, this investors should be more receptive to a first meeting.
In this first meeting, the searcher’s job is to explain the model. Sometimes, the idea of buying a company to run looks like a crazy dream. It is key to be able to communicate that the model has proven to work in a tangible manner: showing successful cases and numbers.
The next step is to convince them how you fit in the model and how can they benefit from it.
4.- Investors that don´t know either the model or the searcher
It is very challenging to get this people on board. And even if they invest, chances are they are not a good fit to sit in your board and advise you through the process.
However, I can think of some good reasons to take the time and pitch to them. For example if they are experts in the industry where the search is focused or if they can help with a function that will probably be needed in the acquired company (for instance, lean manufacturing).
It probably make sense to pitch to investors from easiest to most difficult to convince.
You should be careful with friends, family and fools. Sure, they are the easiest to convince but you should check two main issues:
- They are able and willing to not just invest $30k in the search but 10x more to acquire the company when the search finishes.
- They can offer valuable advice during the search and/or during the management of the acquired company.
Personal track record plays an important role. It makes sense to leverage the special experience or skills you have: international experience, network in the industry, etc.