The trend of experienced entrepreneurs purchasing existing businesses establishes a new era of the CEO culture, evident from a rise in ‘search fund’ startups from 20 firms in 2013 to an astounding 105 in 2023. Entrepreneurs significantly curtail initial struggles by investing in fully operational businesses, promoting quick returns and steady growth rates. The attractiveness of acquiring rather than starting a new venture lies in bypassing the traditional corporate ladder and directly aiming for the coveted CEO title.
The birth of new enterprises hasn’t slowed, but trends show a slight growth stagnation. Investors injected a whopping $242 billion into new businesses in 2022, which plummeted to $170 billion in 2023. This downfall, almost a 30% decline, has made startups struggle to find adequate capital for their operations. Furthermore, the economic instability and uncertainty have necessitated robust financial resilience and diversification strategies within new ventures. However, the entrepreneurial spirit remains strong and adaptable, outlining a potential for growth resurgence in the foreseeable future.
With a decrease in investment for new business projects, MBA graduates are finding the idea of buying an established business more attractive.
Search fund startups: A new CEO era
Acquisitions save time and resources and significantly lower risks associated with the failure of new ventures. This strategic shift presents secure job opportunities and a platform for MBAs to apply their academic knowledge in the real world, encouraging innovation through the restructuring of existing businesses.
Academic institutions are increasingly recognizing the “search fund” model, a strategy in which burgeoning business owners acquire resources from multiple investors. The investors often take on key roles within companies, actively participating in business development. Despite the financial risks if a new venture fails, this model provides an enticing opportunity for business-minded individuals.
Criticism of the search fund model raises concerns about the lack of significant business management experience. Critics argue this approach favors short-term gains over sustainable, long-term growth and claim there’s a misalignment of incentives between entrepreneurs and their investors. Additionally, they point to the apparent lack of transparency in the process and the potential for ill-informed investment decisions, made worse by exorbitant management fees.
Despite these criticisms, the courage, ambition, and sheer determination to succeed embodied by these young MBA graduates is nothing short of inspiring. Their targets are often profitable businesses in landscaping, waste management, and HVAC, offering long operational histories, steady customer bases, and predictable cash flows. Even with the highlighted concerns, they are not fazed, abiding by their unwavering resolve to achieve their vision and commitment to innovation.
