Do searchers compete?
There tends to be quite a bit of overlap in the investment criteria of search fund entrepreneurs. In fact, when reviewing a typical searcher’s website for the first time, you would be forgiven for thinking you’ve seen it several times before. Indeed, the asset class has found a formula that seems to work, and while there are a growing number of departures from that formula, the original is tried and true.
So does that mean searchers are competing with each other? Technically, yes. If they are all going after opportunities with similar characteristics, then they are competitors. Some searchers act accordingly, refusing to share learnings for fear of inviting competition. I was one of them, early on in my search; I would absorb insights from more seasoned searchers but then hesitate to share my own. As I’ve learned over the years, this mindset is counterproductive.
In the context of an accelerator, I am often asked whether searchers in the accelerator compete with each other for deals. After all, they all have access to the same resources and have the same mandate. My answer is that although they theoretically would compete, the reality is quite the opposite. First, the transparency and trust that develops within a cohort working side-by-side is purely additive to the normal searcher-searcher relationship. Whereas “free-range searchers,'' as we affectionately call searchers outside an accelerator, may duplicate work on an industry and run into each other on deals, they may never know it. In an accelerator, that transparency produces efficiencies and avoids a situation in which searchers are bidding each other up on the same deal. As Tom Matlack notes in his post 12 Ways to Crater Your Search Fund, “These days, it’s common for a deal to attract three or four searchers bidding against one another. This fact makes me want to puke.”
Searchers in an accelerator can also set each other up for success. I know of one searcher in an accelerator who passed on two deals that were subsequently acquired months or years later by another searcher in the accelerator. What was not right for him or the seller at the time turned out to be right for the seller and a different searcher later on. Searchers also each have their own preferences and lens through which to evaluate industries, which often leads them to focus on different industries anyway. When they identify an industry that another searcher has already combed over, they can gain insights from that searcher before committing time to the industry.
As for opportunities brought to the accelerator rather than directly to the searcher, my experience is that there is almost never conflict among searchers. These opportunities typically come from an intermediary, and if the accelerator is doing its job, the searchers’ pipelines are already full, and their bar is therefore particularly high for intermediated deals, which typically bring more buyer competition and a lower probability of closing. When you combine this high bar with each searcher’s individual interests, the chances are slim of two searchers wanting to look at the same deal. In fact, most of these intermediated opportunities don’t garner the attention of searchers at all! They’d rather spend time on their proprietary deal flow. And you can be sure searchers in an accelerator don’t bid each other up on a deal!
All of these synergistic behaviors are possible outside an accelerator, though they are more difficult. As in Silicon Valley, which owes some of its success to the pay-it-forward attitude demonstrated by many of its entrepreneurs, the search fund community has prided itself on the transparency and collaborative nature of the ecosystem. And it’s there; the intentions are generally good. However, from what I’ve seen, much of that peer support only penetrates the top layer of problem solving for two reasons. First, it’s difficult to achieve deeper sharing and meaningful synergies when each searcher is operating alone and for the first time without any overarching structure to facilitation knowledge transfer and preservation. Second, there still exist some searchers who, like my former self, play a close hand and prefer to operate in a silo, succumbing to the delusion that they’re the first to discover the pest control industry.
Do searchers compete? Yes, some do deliberately, and others do accidentally. They’ll accidentally run into each other on deals and hide info from each other. However, the ecosystem will benefit from increased sharing. Accelerators like SFA and SMEVentures are moving in that direction, but I look forward to seeing other solutions down the line as well. Through this blog and the growing library of resources on my website, I’m trying to walk the walk, and I hope others continue to follow suit.
