EconomyFinancialSearch founds, a way to start a business with...

Search founds, a way to start a business with less financial stress

Search founds are proposed as an entrepreneurial alternative for those who want to reduce the risk of failure, say specialists. This entrepreneurial model has a risk of failure of around 2%, a low level unlike entrepreneurships via startups, franchises or intrapreneurships.

What are search funds?

Search funds are investment vehicles in which entrepreneurs acquire a percentage of the share capital of an existing company

Entrepreneurship through search funds is ideal for adults, with a family and more expenses than young people. In this type of venture, you have a salary and stable expenses in general, to concentrate on what you are doing and stay as CEO of the company, says Félix Cárdenas, director of the Center for Innovation and Entrepreneurship at EGADE Business School.

Search founds are a vehicle or instrument with two stages, one for search and the other for acquisition. In the first, an entrepreneur is accompanied by a group of investors to identify target sectors and companies. In the second, there is the acquisition and operation of the business.

The basic idea is to generate economic value through the acquisition of a company at a multiple of Ebitda and, in two or five years, sell the business at a higher multiple, of which the entrepreneur has the right to keep between 20 and 30% of the creation. of value.

Search fund risk

The Center for the Development of Business Competitiveness detailed that 8 out of 10 Mexican companies fail during the first 2 years of existence. The Institute of Failure and the National Institute of Statistics and Geography (Inegi) project similar numbers: only 25% of Micro, Small and Medium Enterprises exceed the 2-year barrier.

In contrast to these data, search founds have a risk of failure of 2%, and a start with less economic stress, since a healthy company is acquired from the beginning, according to Cárdenas, who promotes this model in Mexico to boost entrepreneurial alternatives.

Search funds in Mexico

Mexico is an international leader in search funds. According to figures from a study by the IESE Business School and Stanford University, the country is an international leader with 28 funds, ahead of Brazil, the United Kingdom and France.

Similarly, in Mexico there are more than 106 entrepreneurs and search funds conducting searches and investing in the country, according to searchfunder.com, a global platform that brings together entrepreneurs of this type.

For Félix Cárdenas, this is because in Mexico there are around 15,000 businesses that have the characteristics search funds are looking for:

1) Billing between 5 and 30 million dollars.
2) Installed capacity that does not operate at 100% and it is possible to maximize.
3) Ease of access to export markets that enable the diversification of currencies.
4) Low levels of debt.

In Mexico, within the development of this type of model, companies such as Vestige Capital stand out, which acquired Bomi de México for 24 million dollars -renamed Medistik and which has a refrigerated logistics business, specializing in medicines and medical inventories- which he sold to Tresalia Capital for 104 million dollars.

Lottus Capital also stands out, which was created in 2013, and in 2015 it bought the Universidad de las Tres Culturas in Mexico City with 5,000 students and currently operates 30 campuses, with about 50,000 students, being one of the largest private educational organizations. from the country.

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