The search fund space continues to become competitive - requiring operators to diversify the ways in which they build out their leads. Having worked with a few search funds, it takes a holistic approach to fill up your CRM.
For those who are unfamiliar with the search fund space, I just wanted to provide a bit of context before jumping into how you can bolster your search efforts. Feel free to skip to the next section if you’re already familiar with the search fund space.
Background
A search fund is an investment ‘category’ through which a pair of individuals raises funds from investors in order to acquire a company and take on an active, day-to-day leadership role. The idea is to purchase high cash flow businesses (ideally with the potential to grow) using debt to create leveraged returns.
Over the past couple of decades, the search fund space has grown significantly with $924 million of equity capital has been invested, generating an aggregate equity value for investors of $5.7 billion (and roughly $1.5 billion for entrepreneurs).
It is common to see MBA graduates and seasoned operators go on the search fund route in hopes of finding the ‘perfect’ company. The fundamental challenge for a searcher is to find the right business to buy. It's like searching for a needle in a haystack. The searcher has two basic routes - contacting business owners directly, or using brokers as intermediaries. The increased competition in this space has made it difficult to source deals through brokerages/sell-side firms.
Sourcing Deals
While sourcing deals isn’t a core skill for people in this space, it is definitely an activity that is considered mandatory when they start looking for the ‘perfect’ company. In order to do this well, it is critical to build the right stack of technology and processes and create a predictable lead generation workflow.
Messaging
Regardless of the channel that you aim to use, it is critical to nail down your messaging. The most successful messaging is often conversational with the intent of purely having a casual conversation. A more detailed message that asks the owner to respond back only if they’re interested in selling their business rarely works. The initial outreach should focus on eliminating all possible reasons as to why an owner would not want to respond to you.
I understand that this might lead to some time being wasted with owners who might not want to sell their business - however, you should take a long term approach toward this. An owner’s situation and mindset constantly changes and you should aim to be top of mind with everyone you connect with.
Data
Having high quality data to identify and target companies is probably even more important than the messaging itself. A few tips to improve your data quality include:
Data validation - It is easy to take information from a database at face value - however it is probably in your best interest to validate the information yourself or a researcher on Upwork.
Use Benchmarks - While we’d all ideally want to have financial data, it is much more accurate to estimate a company’s financials using factors such as employee size, technology spend and number of locations.
Google Maps - By taking a quick look at the company’s headquarters on street view, you can quickly figure out the size and nature of the business and how that compares with your purchase criteria.
LinkedIn - Using LinkedIn to improve your search efforts will be a recurring theme of this blog. For your research, the most important data point that I look for is the years of experience that the owner has and how long he/she has been at the company. This allows you to understand the likelihood of a potential sale and quickly disqualify target companies.
Channel
There are several channels that can be used to build out your funnel - with Email being the most commonly used (and abused) channel. As I had mentioned before, it is critical to diversify your outreach and maintain a consistent message across all channels.
It is not terribly difficult to setup an automated email sequence that reaches out to prospects and sends out time-based follow ups if there is no response. Some of the sending platforms that I have used in the past include Apollo, Outreach and Woodpecker. They largely vary based on feature/complexity. I’d recommend using Outreach if you have a separate source for data (if not, then Apollo would probably be your best choice).
1) Some of my tips to improve your email outreach and avoid being classified as spam are:
2) Do not have long sequences (4 to 5 emails should be sufficient)
3) Setting up a separate sub-domain so that your main domain remains unaffected (in terms of reputation)
4) If you are using a new domain, make sure that you create enough ‘positive’ activity (volume of delivered and opened emails)
5) Keep volume to ~50-100 emails per day
6) Avoid using links and including attachments in your initial outreach
I am continuing to see more success with LinkedIn outreach (vs. email) as the number of business owners on LinkedIn continue to grow. Similar to email, there are a few platforms out there that allow you to automate your outreach by sending automated connection requests and follow up messages (LinkedIn Helper, Dux Soup).
Some of my tips to improve your LinkedIn outreach are:
1) Follow up with people who have accepted your connection request and have not responded to your message. Most connections tend to respond by the third follow up.
2) Once someone has joined your network, you should do your best to nurture them. The best way to do this is by sharing useful content. I’d recommend that you should think deeply about the owners that you’re going after and understand what you’d like to read if you were them.
3) Limit your LinkedIn actions to 70-100 per day. LinkedIn actions include connection requests, profile views and messages.
4) Build your lists outside of LinkedIn - do not use the Sales Navigator tool as the keyword/industry tagging tends to be unreliable.
5) Improve your profile health by consistently posting content - even if its not your own. It is critical to shift from thinking that LinkedIn is an online resume and to the fact that it is more of a sales marketplace.
Content
An up and coming channel that I’m starting to see in the search fund is the idea of posting useful content (via blogs) and sharing profiles (via podcasts). This is an extremely popular lead gen technique in other industries and is bound to grow within the search fund space as well.
Some of my tips to improve your content are:
1) Stay consistent - It is very easy to get started with 5- 10 blogs/podcasts but the hard part is staying consistent over a long period of time.
2) Outsource non-essential activities - You are probably better off delegating some of the administrative work associated with content creation (e.g. development and creative).
3) Appeal to people’s egos - I’ve seen a lot of podcasts/blogs being used to get prospects to talk. Everyone loves to share their story and by profiling them on your blog/podcast - you have now built a meaningful relationship.
Direct Mail
While direct mail is considered to be archaic in most industries, it is still alive and well in business development. Owners tend to appreciate those who go the extra mile to get their attention. Direct mail is often used in tandem with another channel (Email/LinkedIn).
Some of my tips to improve your direct mail are:
1) Use automation where possible - There are a number of tools out there such as Inkit that allow you to automate your direct mail outreach.
2) Be detailed - Unlike email outreach, you should aim to provide as much information as possible. It is unlikely that a prospect would respond back right away but he/she should have all the information that they need so that they can get back to you whenever it makes sense.
3) Do something to get noticed - This is your chance to get creative - especially with owners who live in your vicinity.
Conclusion
Building out your proprietary deal flow is just one of many tasks that a ‘search funder’ must take on. By taking a long term and holistic approach toward lead generation, you will be able to create an extremely valuable CRM that will continue giving back to you well after your first acquisition.
.jpg)
