In recent years, the business arena has observed a shift, with a growing number of MBA graduates opting to buy existing companies instead of starting new businesses. This rise in “search funds” popularity is likely due to mitigated risks and immediate cash flow appeal- a desirable combo in the current unpredictable economic climate.
Purchasing an established business could be less of an ordeal, offering designated operational structures and an existing client base. Therefore, MBA graduates find this an excellent chance to apply their acquired analytical and strategic skills.
This shift in interest from starting a business to acquisition is steadily growing, marking an evident transformation in the entrepreneurial landscape. From 2013 to 2023, “search fund” start-ups rose remarkably from 20 to 105, reflecting a trend in acquiring over creating.
Beyond 2023, this trend spiked with the number of “search funds” jumping from 105 to 231, echoing a continued inclination towards acquiring businesses rather than establishing new ones. Less risky endeavor and solid returns seem to outshine the glamour of creating something from scratch.
Investors are also altering their preferences from startups to “search funds”. After peaking at $242 billion in 2022, startup funding dipped by 30% to $170 billion in 2023.
MBA graduates’ shift to acquiring businesses
Despite daunting, this shift signals profitable prospects in the domain of search funds.
With investors steering their capital to search funds, the venture capital industry is also witnessing a shifting dynamic. This shift indicates evolving investor priorities, highlighting their knack for identifying lucrative investment channels.
The term “search fund” was aptly defined by Nell Gallogly of the New York Times. “Search fund” is a strategy wherein ambitious entrepreneurs accumulate funds to scout, acquire, and manage a company. This strategy gains favor among entrepreneurs looking to establish control over existing companies than launching new ones.
While many “search fund” founders are newcomers to the corporate world, they manage to secure investor support for their acquisition plans. Their ability to quickly learn and adapt coupled with their enthusiasm and convincing demeanor encourages investors to fund these ventures.
“Search funds” primarily aim to acquire flourishing businesses with steady revenues ranging between $5 to $10 million. These funds mostly target diverse industries such as waste management, landscaping, and HVAC. This innovative strategy by MBA graduates is revolutionizing the corporate landscape.