Search FundsSearch FundsAn OverviewAn Overview

What is a Search Fund?What is a Search Fund?

Capital raised to help an entrepreneur to Capital raised to help an entrepreneur to search for and acquire a businesssearch for and acquire a business

The entrepreneur is usually a young MBAThe entrepreneur is usually a young MBA Most Search Funds have a 3 to 5 year Most Search Funds have a 3 to 5 year

outlookoutlook Investors and principals receive a return Investors and principals receive a return

after dividends are issued, the company is after dividends are issued, the company is acquired by another, or an IPO eventacquired by another, or an IPO event

Advantages of Search FundsAdvantages of Search Funds

Offer new entrepreneurs a quick path to Offer new entrepreneurs a quick path to capital and owning a small businesscapital and owning a small business

Generate significant returns to principalsGenerate significant returns to principals Investors can serve as advisors to the Investors can serve as advisors to the

entrepreneurentrepreneur

The Main Advantage of a Search The Main Advantage of a Search Fund Is…Fund Is…

The experience provided by the investorsThe experience provided by the investors Investors acting as advisors can steer the Investors acting as advisors can steer the

business and entrepreneur down the right business and entrepreneur down the right pathpath

Psychic benefit to investors working with Psychic benefit to investors working with young entrepreneursyoung entrepreneurs

Stages of a Search FundStages of a Search Fund

Stage 1: Raising the FundStage 1: Raising the Fund Stage 2: Searching for and Making an Stage 2: Searching for and Making an

AcquisitionAcquisition Stage 3: OperationStage 3: Operation Stage 4: ExitStage 4: Exit

Raising the FundRaising the Fund

A business plan is createdA business plan is created Principals look to a wide variety of Principals look to a wide variety of

potential investorspotential investors Each investor typically purchases one or Each investor typically purchases one or

several units at about $20,000 to $35,000several units at about $20,000 to $35,000 Entrepreneurs look for investors who can Entrepreneurs look for investors who can

act as advisorsact as advisors

Searching for an AcquisitionSearching for an Acquisition

Search by either location or industrySearch by either location or industry Searching geographically can help a principal Searching geographically can help a principal

logistically, but limits opportunitieslogistically, but limits opportunities Target 2 to 4 industries, taking less timeTarget 2 to 4 industries, taking less time Generally target industries that are not subject Generally target industries that are not subject

to rapid technological change and are in to rapid technological change and are in fragmented geographic or product marketsfragmented geographic or product markets

Searching for a company to buy usually Searching for a company to buy usually takes from 4-8 monthstakes from 4-8 months

Making an AcquisitionMaking an Acquisition

Each investor is given the right of first Each investor is given the right of first refusal on any acquisitionrefusal on any acquisition

The investment is stepped up in the The investment is stepped up in the acquisition roundacquisition round

The business will often sell for a multiple The business will often sell for a multiple equivalent to 70% to 130% of revenuesequivalent to 70% to 130% of revenues

If the initial capital is exhausted principals If the initial capital is exhausted principals may close the fund or find additional may close the fund or find additional capitalcapital

Operation and ExitOperation and Exit

Principals recruit a board of directorsPrincipals recruit a board of directors Initial investors are often includedInitial investors are often included

Principals create value by improving Principals create value by improving revenue growth, operating efficiency, or revenue growth, operating efficiency, or expansion, often in conjunctionexpansion, often in conjunction

Search funds have a 3 to 5 year outlookSearch funds have a 3 to 5 year outlook Investors receive a return via an Investors receive a return via an

acquisition, selling investor equity, or acquisition, selling investor equity, or dividends may be issueddividends may be issued

Search Fund IRRs to Original Investors

2001 Study Figures 2003 2005

Individual IRRs:

Minimum (100%) (100%) (100%)

25th Percentile (100%) (100%)

Median 17.6% (23.7%) (16.1%)

75th Percentile 21.9% 24.8%

Maximum 98.3% 84.8% 215.0%

(100%) 26.5%

(51%) to (99%) 12.2%

(1%) to (50%) 14.3%

0% to 25% 22.4%

26% to 50% 14.3%

50% to 75% 4.1%

76% to 100% 2.0%

>100% 4.1%

Aggregate IRRs with Same Starting Dates:

Actual Cash Flows with Original EBITDA Multiples

37.6% 31.7% 37.3%

Actual Cash Flows with Estimated Current Multiples

Minus 30% Discount35.7% 33.0% 37.7%

Comparison of Search Fund Acquisitions

CategoriesAll Acquisitions

Median StatisticsTop Quartile Performers

Median Statistics

Purchase Price $5.7 M $8.5 M

Search Fund Investor Capital Raised for Company Purchase

$2.2 M $2.3 M

Company Revenues at Purchase $7.0 M $6.5 M

Company EBITDA at Purchase $1.0 M $1.4 M

Company EBITDA margin at Purchase

17.0% 22.0%

Purchase Price / Revenue Multiple 0.9x 0.95x

Purchase Price / EBITDA Multiple 4.6x 5.6x

Company Employees at Purchase 57 65

Search Funds in AlaskaSearch Funds in Alaska

Working with Native CorporationsWorking with Native Corporations Alaska InvestNetAlaska InvestNet Opportunities for growthOpportunities for growth Previous attempts to assist entrepreneursPrevious attempts to assist entrepreneurs

Business plan competitionBusiness plan competition

Working With Native CorporationsWorking With Native Corporations

Opportunities for new entrepreneursOpportunities for new entrepreneurs Structure of native corporations allows for Structure of native corporations allows for

growth and expansiongrowth and expansion

New Innovative ANCSA 8(a) New Innovative ANCSA 8(a) Business ModelBusiness Model

Entrepreneurial Manager

Technical and Professional

Services

Provide the entrepreneurial manager with

access to opportunities

Business Opportunity

Facilitate access to

capital and management

expertise

Capital Investor

Identify and develop

entrepreneurial opportunities

YIELD

ANCSA 8(a), LLC

Potential Investors & Participants•Collaborative, non-majoritive LLC

•Facilitate 8(a) process•Help identify deal flow

•Minimum capital/bonding req’s•Sponsor individuals to develop

internal expertise

Founding ANCSA Corp.(s)

•Capital in-flow coupled with project-based expertise

ANC’s with Opportunity Based Core Competencies

•Private investors and AIN•Provide & facilitate capital

•Identify & capture management expertise

•Help identify deal flow

Lead Active Capital

•3 member board

Board of Directors

•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

Lead Active Manager

•Expertise in 8(a) procurement process

•Legal & procedural advice

Counsel

•Technical & professional services•Project-specific competencies•Little or no ownership stake

3rd Party Experts

•SBA 8(a) contracts•OMB A-76 contracts

•Focus on profits over revenues

The Projects