The superhero searcher
When I was raising capital for the first time in 2012, some investors declined to invest because I didn’t have material operating experience. Others said yes because I had sales experience. Those who ultimately invested also liked me and believed prospective sellers and future employees would like me as well. They recognized that my operating abilities were yet untested, but they were willing to back me because they believed I could find a good deal. If I were the cynical type, I might say that some of them thought that if I sourced a good deal but failed to operate, they could always replace me as CEO.
Still other investors are looking for the whole package. They want a searcher who can source an opportunity, complete a transaction, and successfully operate a business. In some ways they must select for this profile because the searcher is left to her own devices for much of the search and much of the operational phase, and she therefore determines her own success at all stages. This superhero searcher therefore needs the skill set of a salesperson to efficiently source deals and manage a pipeline, of an investment professional to adeptly evaluate each opportunity and get the deal across the finish line efficiently, and of a CEO who can effectively operate the acquired company.
These people are hard to find, and an argument can be made that when an investor looks for all three skill sets in equal strength, she might miss out on the entrepreneurs who might be lacking in one but who are exceptionally strong in others. Clearly there is material overlap in these skill sets, but very few people have them all.
One of the reasons I support the accelerator model is that it addresses this conundrum. An accelerator, done right, offers so much support during the search and deal phases that it has the luxury of selecting searchers primarily on their ability to operate a business post-acquisition and less on their experience sourcing, evaluating, and executing M&A deals. Of course, salesmanship is an important skill set of a CEO, but in this area the CEO’s skills can also be complemented by a strong sales team when necessary. Other characteristics, such as the capacity to lead and the ability to strategically allocate capital, must absolutely sit with the CEO. Such skills, therefore, should be prioritized above others in the selection of a great search fund entrepreneur.
At SMEVentures, we look for great operators. We don’t care whether you’ve even looked at an M&A deal before, but we do look for three things above all else:
Extreme intelligence/analytical ability/intellectual curiosity. In my experience this can make up for other gaps in the profile.
Demonstrated ability to manage and lead people. Prior CEO experience is not a requirement, but there are other ways to show you will be effective as a leader and manager.
A blend of a) the entrepreneurial grit and confidence it takes to push through the inevitable rough patches and b) the self-awareness and humility required to receive coaching and not come across as a jerk to sellers and employees, both of whom are likely to be older and more experienced than you.
Of course we look for the basic MBA-type skills required for a CEO job of this type, but CVs can be fudged and references are nearly always glowing. By contrast, intellect and mindset are honest indicators of a person’s capacity to operate, and we spend a lot of time with prospective searchers to get a good understanding of these attributes.
Action Items
Read 8 reasons (not) to launch a search fund and take inventory of your motivations.
Then take inventory of your skill set. Does it need additional exposure and augmentation before you step into the CEO role? If so, go get it, and then search.
