Pontifications on globalizing the search fund model
These are exciting times for search funds. As awareness grows globally and new markets continue to open up on nearly every continent (no Antarctican searches to date), the model is evolving and uncovering new opportunities and challenges in every corner. Slowly, the US-centric narrative of “the international search fund” is losing relevance, and search funds in any market can be compared on a level playing field as we simultaneously acknowledge market-specific idiosyncrasies.
Some of the most interesting searcher conversations I’ve had recently have been around choosing a market/country in which to search. First of all, let’s all appreciate how wonderful it is that this is a legitimate question to ask. Not only do we have aspiring searchers who could feasibly search in more than one country due to their multilingualism and/or multiculturalism, but also the model has developed enough of a track record to instill enough confidence in these searchers to even consider searching in non-traditional markets.
In Q1 this year I had conversations with about 70 prospective searchers across APAC. All of them were MBAs and many had come across the search fund model in business school, had friends who launched search funds, and were initially excited by the model as a potential career path only to discover APAC’s near-nonexistent track record with search funds, a realization which dimmed their hopes for raising capital. I would imagine that a similar story unfolded for hundreds of would-be searchers in Europe and Latin America before the model began to flourish in those parts of the world. We now have dozens of search funds to date in each of LatAm and Europe, and in APAC we have several people raising search capital and one active search fund in Australia. It’s only a matter of time before prospective searchers in APAC have plenty of precedent to follow. Of course, I’m doing what I can to accelerate the realization of that goal.
However, in several new markets, we’ve seen some investors draw conclusions about that market based on the experience and outcomes of the first 1-2 searchers in that market. There are several challenges here. First, those conclusions are sometimes drawn from a distance and based on observations from the searcher himself or herself, which can lead to various forms of attribution bias. Second, the sample size is small. Searchers fail for a variety of reasons, even in the US, and only with a large enough sample size can one reasonably start to make inferences about the market. Third, a lone searcher in a new market, without anyone to help him or her blaze the trail, is likely to have a tougher time than your average searcher in an established market.
In the ideal scenario, therefore, the investment community would support at least a handful of searchers in rapid succession in a given market. This approach will provide for a larger sample size, making any inferences about the market more defensible, and will improve the likelihood of success of each of those searchers simply by virtue of having in-market peers.
Furthermore, once the investor community signals an interest in a market, more prospective searchers are sure to emerge in that market that might have otherwise chosen a path with more precedent, and with great reason! Being among the first searchers in a market is hard. It’s hard to make that career choice without any precedent, it’s hard to raise the capital, especially from local investors, and it’s hard to blaze the sourcing trail. On the other hand, we know from markets like the US, Canada, Mexico, Brazil, and Spain, that success breeds success, and having more current and former searchers in a market is very helpful for newcomers.
In APAC, we at SMEVentures are trying to walk the walk, building a cohort in one market at a time, enabling those searchers to support each other and building a large enough sample size to start making some defensible inferences, differentiating the approach to meet the needs of that market, and optimizing the probability of success.
Action Items
If you’re the first or one of the earliest searchers in your market, you would be wise to find others. Encourage others in your country to launch a search, and show investors that it’s possible to build a critical mass of search funds in that market.
If you know another searcher who is one of the early pioneers in a market, think of who else you know with ties to that market and make introductions. Raising awareness is the first step.
