Entrepreneurship through acquisition: How to get started

What is entrepreneurship through acquisition (ETA)? 💡

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ETA: buying and growing a small business as a means of becoming an entrepreneur

Acquisition entrepreneurs who raise external capital to buy a business to then run are commonly referred to as searchers, or running a search fund.

Benefits: less risky, revenue and customers to start with

Downsides: can be difficult to finance, less equity (if an investor is involved)

Where to learn about ETA? 📍

Courses: e.g. Chicago Booth or HBS

Podcasts: e.g. Acquiring Minds

Reports: e.g. Benny and Christian

Jobs: e.g. work for a search fund before starting one

What makes a good acquisition target? 🎯

Industry: acquirer should be familiar with it

Time horizon: business should have been around for at least a few years

Size: big enough to sustain the buyer, even if there is a dip in performance

Valuation: can start small, up to $20M (mostly with financing at that point)

Margins: at least 15%

Customers: best if recurring

Location: acquirer must be willing to move (if business cannot be moved)

Finding deal flow 🔎

Proprietary deal flow
Direct outreach to acquisition target, no other potential buyers are involved

Benefits: cheap valuations due to lack of competition

Downsides: very difficult to find deals, most times founders will actively reach out to alternative buyers anyway to get multiple bids

Brokers

Benefits: take a lot of work off the searcher's plate, provide good deal flow

Downsides: commission fees between 5-15%, competing with other buyers

Marketplaces
Shameless plug: BitsForDigits, our acquisition marketplace

Benefits: deal flow is much cheaper as opposed to brokers

Downsides: competing with other buyers

Financing an acquisition 💸

Self-funded search: acquisition entrepreneurs simply fund the purchase themselves

SBA loans: Small Business Acquisition loans to buy a business (mostly US)

Traditional search fund model: ETA entrepreneur will raise capital from external partners to buy a business

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