Launch Series Ep.2: Search Startup with Nikita Sunilkumar and Alex Thinath – Ep.174

Ravix Group — Ravix Group is the leading outsourced accounting, fractional CFO, advisory & orderly wind down, and HR consulting firm in Silicon Valley. Whether you are a startup, a mid-sized business, are ready to go public, or are a nonprofit, when it comes to finance, accounting and HR, Ravix will prepare you for the journey ahead. To learn more, please visit their website at https://ravixgroup.com/

Hood & Strong, LLP — Hood & Strong is a CPA firm with a long history of working with search funds and private equity firms on diligence, assurance, tax services, and more. Hood & Strong is highly skilled in working with search funds, providing quality of earnings and due diligence services during the search, along with assurance and tax services post-acquisition. They offer a unique way to approach acquisition diligence and manage costs effectively. To learn more about how Hood & Strong can help your search, acquisition, and beyond, please email one of their partners Jerry Zhou at [email protected]. 

Oberle Risk Strategies– Oberle is the leading specialty insurance brokerage catering to search funds and the broader ETA community, providing complimentary due diligence assessments of the target company’s commercial insurance and employee benefits programs. Over the past decade, August Felker and his team have engaged with hundreds of searchers to provide due diligence and ultimately place the most competitive insurance program at closing. Given August’s experience as a searcher himself, he and his team understand all that goes into buying a business and pride themselves on making the insurance portion of closing seamless and hassle-free.

If you are under LOI, please reach out to August to learn more about how Oberle can help with insurance due diligence at oberle-risk.com. Or reach out to August directly at [email protected].

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(00:02:22) Introducing Nikita and Alex

(00:04:54) Activities and questions in the 3-12 months leading up to the Search

(00:10:35) Industry research

(00:14:35) Cap table and investor selections

(00:22:53) Drafting a PPM

(00:32:34) Daily activities and tools to use one month into a Search

(00:41:55) How Searchers should pitch themselves

(00:47:42) Getting into your groove: 6 months into a Search

(00:54:12) KPIs and benchmarks to hit during Search

(00:59:50) Utilizing interns and VAs

(01:05:59) Final thoughts

Alex Bridgeman: Thank you both for doing the second episode of our Launch Series on search startup. I’d love to just start with a quick intro from each of you. And then we can jump into starting up a search and kind of timeline of tasks and whatnot. But Nikita, do you want to start us off?

Nikita Sunilkumar: Hi, I’m Nikita Sunilkumar. I am a former engineer and consultant. I came to search kind of in the typical way, found out about it in my MBA program at Kellogg. I searched in 2019 and acquired a business in 2020 in the geriatric primary care space. I was a traditional search. And I was backed by a lot of great investors, including Trilogy here in Washington State. I operated the business for 22 months and had an exit in December of 2021, kind of an unexpected opportunity, but great outcome. And then I transitioned to working with Trilogy on the investing side. I currently work on recruiting efforts and connecting with prospective searchers who are thinking about launching their own searches.

Alex Thinath: Great. This is Alex Thinath. I’m a current searcher. I’m about nine months into the journey here. Eclectic background, but engineer by education, mostly in software, whether it’s at startups or larger financial services firms. I’m a solo searcher during a funded search. I did not start the search right after my MBA program. I did get an MBA but ended up searching about close to four years afterwards. And I’m currently looking at mostly software, almost no services.

Alex Bridgeman: Do want to jump into a little bit more about your search? There’s a couple of things you mentioned, kind of timeline, in your search. Is there anything else you want to add before we go into the kind of timeline overview of what the search startup looks like?

Alex Thinath: I guess the only thing I would say, speaking for myself, is that I would caveat a lot of my own advice by the fact that I am only nine months in, I haven’t acquired a company, and that company hasn’t gone on to do great things. So as much as I can comment on the state of search right now, I personally like to be judicious on who I take advice from. So, I have to give that qualifier, of course.

Nikita Sunilkumar: The only thing I would add on timing and sort of search launch is there’s a whole world of ways to go about it. And so, I’ll try to cover examples of things I’ve seen at least and options along the way. There’s really no one size fits all kind of approach to launching a search. There are some models that have worked for people and sort of defined approaches that people have taken. But this really is a choose your own journey.

Alex Bridgeman: Yeah, certainly. And we’ve broken up the search startup discussion into a number of sections kind of based on a timeline before and after search. So, the first section is around 12 to 3 months prior searching, what are some activities you should be working on, things to think about, questions to ask. The next section is the month before the search, what did that look like, the month after. And then six months into the search, what does that look like for you. So maybe starting with the 12 to 3 months prior to search, Nikita, you had a lot of really good thoughts around questions to ask and things to think about in this phase where you’re kind of beginning to plan out what your search could look like and some key questions around there. I’d love to hear your thoughts there.

Nikita Sunilkumar: Yeah, absolutely. So, I think the really common approach that folks take is that they hear about one of the models of search. You may hear about a self funded search, or you maybe read an article about the traditional model or something like that as a starting point, and that’s great. I think when we talk to searchers now, we really recommend that they talk to as many folks as they can in that 12 month mark, sort of starting that year before you actually go out and fundraise. So that’s talking to current searchers, talking to CEOs, talking to investors. And it’s not unusual that searchers have met 25 plus other searchers in that process or a dozen or more investors. That network definitely helps as you get further along in the process. So, it’s good to invest upfront. The other thing you want to do is look at other models other than the ones that you’ve already been introduced to, even if you’re thinking you’re going to go do a traditional search, maybe look into what does a self-funded search entail, because it really then brings to relief the pluses and minuses of each approach and what you really want to prioritize. Some of those elements are just how much risk are you wanting to take? What size of business are you looking to buy? What do you want to gain from having an investor network and investor relationships? What type of personal considerations do you want to put into this? Are you trying to do something that’s geographically limited? Are you open to traveling anywhere to find a business? Do you want a partner? And definitely having conversations at that point with your family as well about what the next five to seven years of your life might look like is really important. So, these are all things for that 12 month mark of starting the journey. At that point too, I will just say something that we’re seeing a lot more of is folks coming to search from different approaches, different backgrounds. Typically, I think we’re used to seeing MBA graduates coming to the search model with preparation from their MBA programs or their clubs or anything like that. But there’s also now folks who are coming later in their career who are learning about search, maybe they’re alums of these MBA programs that produce a lot of searchers currently, or the other option is folks who’ve worked for search portfolio companies. So, you may have been a chief of staff at a search backed company or taken on an executive role. And that’s a great training ground to think about launching your own search. And yeah, I won’t say that, like I said, there’s no one right answer for anyone, but there’s a ton of options. And the more people you talk to, the more perspectives you’re going to get.

Alex Bridgeman: What are some ways in which somebody could figure out if they would enjoy being a CEO? Like after the search concludes, and hopefully they find a business, and that becomes their life for the next few years, what are some ways that you’ve seen that are effective at figuring out if they would enjoy that part?

Nikita Sunilkumar: I think I’ll give my perspective and then turn it over to Alex. I think it’s really taking opportunities along the way in your career to take ownership and really exercise that element of leading a team really and taking a team on a journey through growing something or building something, even if that’s on a smaller scale in a larger corporate setting. So, for me, for example, I had a really operationally heavy job when I was an engineer. It did give me a lot of freedom and flexibility to go out and define what my day to day looked like in order to accomplish some goal, even though that wasn’t sort of an independent entrepreneurial venture. And it brought me in contact with a lot of different people and just building a team, motivating a team to go get something done. That was really exciting to me, and it really inspired me. I think other folks can get that element a few different ways, certainly through their jobs, maybe you did something at school that gave you that kind of element of leadership and team building. Maybe it was something that was volunteer work or your own side hustle, or whatever it may be. There’s tons of different ways. I think working for- interning with searchers is a great option or interning at a search backed company, like I said, or working for one is another option. But there’s definitely multiple approaches.

Alex Thinath: Yeah, those are all great comments. Hopefully, these two aren’t too much of tropes. But two ways I like thinking about this are, the first one kind of repackaging the question of why should people follow you? Are there good reasons in your career where you could demonstrate that happening? And do you have some plausible story to tell to some founders or owners or sellers about how you did that? Similarly, maybe abstracting further too, just have you gone through a journey of you’re a doer, becoming a leader, becoming a leader of leaders? That’s something you’re going to have to do once you’re in the seat as well. And that can come from any- that doesn’t have to be an MBA oriented background, of course, to Nikita’s point. So, if you could see something that looks like that, or you’ve gone through that path, or probably more importantly, enjoyed that journey, that’s something that could mean it’s a good fit for you.

Alex Bridgeman: So if someone’s decided that search is, in fact, something that they want to do, and they’ve done enough research and gotten to know enough people, that being a CEO is something they think they could enjoy and potentially be good at, is there work around industry research or trying to think through the story to tell the owners using your past experiences, is there something in there that’s helpful to do in that 12 to 3 months prior to searching?

Alex Thinath: I think so. It kind of ties into if you want to do an industry focused search versus call it a more broad-based search. In either case, you should have your story together. Because, I’ve said a lot, you’re really a glorified inside sales rep when you’re reaching out to these owners, and why should they even talk to you in the first place, that has to be apparent in that first email and definitely in that first conversation. You’re asking these people that, as the CEO of their baby that they have built and grown for sometimes 30 years. So, you’ve got to be pretty compelling in explaining why you’re not some random interloper who could actually take the reins and do a good job.

Nikita Sunilkumar: I’ll definitely echo that. I think there’s definitely different approaches you can take, as we discussed. I’ll give sort of a perspective here that’s more informed by my experience and the work we do at Trilogy. We really do believe in the industry focused search. I know, Alex, you have another episode that talks about that more tactically. But what it really does is allows you to align all of the elements of your background and your interests with that of your investors and the potential sellers that you’re going to encounter and the future, even the teams that you’re going to work with and the employees. So, you’re really starting with a perspective of what’s my background, where are my interests, where are my strengths. Then you’re tying that to where are the industries where I can add value, and I can really make a difference. You’re bringing that forward to the conversations you have with your investors when you’re fundraising to really make the case for why they should partner with you. And then finally, when you get in front of a seller, as Alex said, you’re talking to them as a credible member of that industry or someone who could be a credible member of that industry and really take their business further and do more than someone who’s just sort of walking in off the street. All of those things really form a really nice narrative. And they are all sort of accretive steps that you take one after the other, and it comes back around. It doesn’t end when you acquire the business. As a CEO who’s interacting with your board and potentially continuing to work with your seller and then continuing to engage with employees, competitors, potential buyers, all of those things start lining up where you’re saying, hey, I’m building upon prior experience, prior knowledge, and prior awareness to really do right by this business, as opposed to saying, I bought something where I really just don’t have any idea what I’m walking into, and then having to kind of learn all that at the same time that you’re taking the reins of probably a very complicated business that you’re also trying to learn the ins and outs of. So yeah, very much a proponent of the industry focused search and something that we do encourage people to spend a lot of time on. And there’s a lot more resources now on how to weave all those pieces into your materials when you’re launching a search, specifically your PPM, which is the private placement memorandum that you circulate to your investors. And we share a lot of those resources with people that we work with as well.

Alex Bridgeman: Yeah, certainly. Maybe we can start moving to that kind of one month prior to search phase and raising your capital and drafting your PPM. Do you want talk about kind of cap table and investor selection and how a searcher should go about thinking through that as they’re close to launching their search?

Nikita Sunilkumar: Yeah, I can start here. If you’re working on a traditional search, most cap tables have a pretty standard structure in that you’ll have a couple of lead investors. These are folks that take 15 plus percent of an allocation on a cap table. They’ll probably be, one or more of them will be your first call when you’re looking at deals. And they typically will have more staff and time and resources to dedicate to support you in the search. Then there’s a great set of institutional investors in the search space who have industry expertise, have great networks, have great sort of pattern recognition in specific industries. So, you definitely want to find out who has worked in the spaces that you’re interested in, understand how you can cultivate that relationship as it gets closer to acquisition time, maybe you want to build a board from some of these investors and ask them to partner with you in that way. And then there’s a long tail of individual investors and smaller investors in the space that are new to the space. Also, great to build a group of those folks who bring very specific maybe operational expertise, or maybe they have connections to particular sectors of the economy where you want to learn more. All of that can be really helpful. For example, I do a lot of work with healthcare searchers just because there’s a lot of little complexities that you just wouldn’t know about unless you are working day in and day out in that space. So, I’m happy to share that knowledge. And there’s a lot of great folks who have that domain knowledge in particular pockets. What you’re looking for is a lot of diversity of thought as well. You want folks who will give you good clear feedback and be able to engage with you when you’re looking at deals and tell you honestly what they think. And then ideally, you want folks who will take the call when you really need them to and say, hey, yeah, I’m here to help. Maybe it’s 10 minutes, 15 minutes out of their schedule, but it can be really, really impactful to you as a searcher and a CEO when you’re under the gun trying to get something done. So that’s something that I would also consider as important. But that’s roughly the structure that I’ve seen. There’s also other variations on that, of course.

Alex Thinath: These are all very tactical points and really just regurgitating advice before I started, but things like how many investors total do you want to have in your cap table? The pros and cons of this being if you have a lot, that’s a lot of cats to herd, but it gives you a lot, a much larger network to tap into. Maybe you have someone who’s your investor who knows some industry you’re looking into could also give you a more diverse pool to tap into if you’re doing a larger deal, something like that. I don’t know where the average is right now, call it 10 total investors, probably less. And other variables here would be, to Nikitas point, do you want to have a single one or two lead investors who are funds? Do you want to have a mix of prior searchers or call them individual investors? For example, I’m roughly split between a couple of the more established funds who have a good set of experiences in the space like Trilogy and Pacific Lake and then Miramar, and former searchers because I would love to hear their experience. And I liked when I heard it when I was doing my search. A couple of other variables here as well. Some folks will just be open with you and say, hey, I think I’ll actually be the most helpful during the operations phase. I did a search and it was years ago, or, hey, I looked in this other space, so I think my value would come elsewhere. The thing that really settled it for me is just talking to searchers, currently operating CEOs, who did you like? How would you categorize certain people? Who was engaged? Who could you pick up the phone and call for some random question that just sounds dumb? You should have people like that in your investor group because you’re going to have a lot of those questions. And one more thing, because it’s important too, the point around aligning to your search strategy, like Nikita said about healthcare, if you know off the bat, hey, I’m going to spend a lot of time in healthcare, you should probably have some people who are familiar with it on the cap table. And this also ties into can you even get a deal over the finish line? For example, I’m looking at mostly software companies. And if you have investors who haven’t done a lot of software deals, they’re going to say, hey, this is crazy expensive, we can’t do this. But perhaps that’s the norm, some ARR multiple for another search investor. So, you can save yourself a lot of time and trouble and have everyone aligned around the elements of your search, if you come in with that understood or defined before you even reach out to the investors.

Alex Bridgeman: Alex, you mentioned that you would call current searchers and current CEOs and ask them about certain investors. Did you find that to be the most helpful way to vet and understand which investors you might want to partner with most?

Alex Thinath: Yes, and I say this completely acknowledging that it might turn into an echo chamber pretty quickly. But I spoke with 5 to 10 searchers or folks who did search and that were currently operating and really just triangulated between their cap tables and who they said was good. And that was my cap table. I just decided to draw a Venn diagram. And it was actually pretty easy because it was the same overlapping people mentioned a lot that the searchers liked, so it seemed like a safe bet.

Nikita Sunilkumar: I like that approach too, Alex, because it gives you an understanding of really what questions to even ask too when you talk to other searchers and CEOs to ask about how they interact with their investors. It’s hard to know what those situations are going to look like when you’re very early in the process of thinking about search. It’s not just an initial call and okay great, your PPM looks fine. Let’s get going. It’s a whole relationship that’s going to build over multiple years, and it’s going to change. The nature of it is going to change. You’re going to need different things from these investors and from your network broadly as you go through the different phases. So maybe talking to a CEO gives you more kind of color and illumination to what does that board relationship look like? What does it look like when you call an investor with sort of a very specific issue and need to get advice quickly? Or you’re looking for resources on something really, really tactical and tangible? So even if it’s not- I like Alex’s approach of triangulating. Some folks may have just naturally closer relationships with certain people, and that’s great. But what you’re really looking to hear are those examples of like how did you interact with this person? What did that look like? What were the circumstances and the context of it? That can be really, really helpful. And it’s very clear when we’re talking to new searchers who’s done that and who hasn’t just because you start to see all the ways in which that investor searcher relationship can evolve.

Alex Bridgeman: So, turning to drafting a PPM, you’ve mentioned before a couple components are fairly standard, but I’d love to hear more about constructing a PPM and what specific sections maybe searchers should pay the most attention to or think the most about.

Nikita Sunilkumar: I will take this again. In terms of just the quick things that we look at, there’s certainly some sections that are fairly boilerplate, and they’re intended for investors that are not familiar with the search model. So, it’s pretty common to include kind of a primer on what search is and how it works and all that. That’s all pretty standard. The things we look for are really the searcher’s background, their biography effectively and their resume, their industry thesis work, and then finally, we look for kind of the surrounding detail on how they intend to approach their search. And this could be anything from very, very specifically, I intend to spend this much time looking at brokered deals, or I intend to focus on this geography, or I intend to have 100 interns. I don’t know, I’m being facetious. But really the parts of the PPM that will tell us what is this person actually going to go do once they launch their search is really helpful. Again, going back to an earlier point, you want to have alignment between all those three things, and you want to show that narrative of, hey, this is my background, it’s going to inform which industries I’m searching in, this is the reason I like this industry, and this is sort of the context around why I think it’s a good opportunity. And then finally, this is how I intend to approach the search to make my chances of acquiring something in the space the highest possible chance. So, all of those things have components that will inform each other and we’re looking for those threads to kind of connect. Sometimes it’s clear, people will come to us from a particular background, but they want to search in something completely different. And that’s fine. But I think you kind of want acknowledge that and speak to why you think you can bridge that gap and what specifically you’re going to do to build credibility amongst other investors and sellers and so on.

Alex Thinath: A couple parameters here, too, in the PPM that are good to, I don’t know, clarify, I agree that most of it’s just going to be things like what Nikita said, geography, a broad focus on software services, healthcare, rough buckets like that. I would say if you plan to do industry led, or call it more volume based, the role of brokers and bankers. I know you touch on this too, but you will have investors who say, this is around the alignment point too, who will say, yeah, go that route, they’ve got all the deals, that’s great. Other investors will say do not ever work with brokers, you’re setting yourself up for your deal to be on auction. This isn’t as hard of a filter, but I would almost think about it or something I’ve run into is growthy companies versus people have different philosophies there from the investor perspective. And I’m not saying you have to pick one of those, it’ll probably just come down to the idiosyncrasies of the company or industry, but it can be good to get investors’ thoughts on that distinction, if they had to pick what would they prefer. It’s more of a software or a tech enabled services perspective, but I’ve found that one to come up a lot.

Alex Bridgeman: Can you dive into the idea of whitespace a little bit more? What do you mean by that?

Alex Thinath: Yeah, I’ll just tell you maybe two of mine that I had in my PPM, to be honest. I had a hunch that hey, maybe there’s some software in tugboats, tow boats, and barges. So, growth in that industry, probably pretty low. But whitespace probably very large. There’s not really deep software adoption by those folks compared to a more growthy bet like dev tools, tools for developers, there’s all sorts of higher growth industries that maybe they’re smaller but they’re just taking off. So it’s fundamentally a different bet in many cases, like the whitespace is more of can you get to a double digit market share in your smaller market? Versus you ride the overall industry growth rate.

Nikita Sunilkumar: Yeah, I’ll also piggyback off of this. It’s great when a searcher has done their homework on knowing what are the portfolio companies that a search firm or search investor has already invested in? It’s something you can also understand from having those searcher calls and CEO calls. You can get a sense for who investors are by looking at those things, and then coming to the table for that first conversation with an idea already in mind of these are the folks I want to work with and these are the reasons why can really make that conversation pretty meaningful. And, of course, it doesn’t hurt to ask and build that knowledge. But as much of that as you can get done beforehand is great. Because when you have the PPM and if you put it in front of someone, you want to know that that’s a valuable conversation for you and for them. So that’s always a good sign that someone else has done the prep work. The last piece of a PPM that I forgot to mention are obviously the terms. There’s some key terms in here that you want to be aware of and have put some thought into, certainly how much you’re planning to raise, what you’re planning to use that search capital for, what does your budget look like is important. You’re obviously talking about how does the structure around equity compensation work, you really want to understand that and have taken time to do whatever models you need to so you get the gist of that. And then anything that’s sort of significantly off market, I would say, you really want to have thought about why you’re including it and what the ultimate goal of that element is. So, it’s very hard to talk about those things because they all change. The market is not a defined thing that stays fixed. It’s kind of a fluid piece of piece of the industry. So again, a lot of conversations are necessary to get a handle on that. And there’s some specific legal pieces of the PPM that you’ll work with a lawyer to put together who ultimately represents the fund that you’re going to pull together. So, there’s a few folks that do a lot of this work in the industry. So, you want to make sure you’re connecting with them early and understanding all of that.

Alex Bridgeman: Would it be helpful to outline what terms or market terms are today? Or is that something you’d rather searchers just reach out to you directly, then you just tell them over the phone or something?

Nikita Sunilkumar: So, when we’re working with searchers at Trilogy, we track what we’re seeing, for example, what is an average budget, what is an average salary for a searcher, things like that, and we do have that data internally. And it’s always evolving, of course, but we can share that information for folks who are interested.

Alex Thinath: I think one thing to add here, too, there’s a lot of flexibility there, with the one exception being the equity compensation structure. They’re investors, they’re going to care more about that than anything else. So just again, talking to other searchers or people who have searched, understand what those are, there’s really just two pretty common structures, whether you’re solo or have a partner. And if you want to deviate from the market point, not to say it’s impossible, but you should have a good reason for why you’re proposing that.

Nikita Sunilkumar: This is all assuming folks are doing a traditional search, and they’re raising a search fund specifically, and then they’re going to go out and actually acquire something. In situations where people have already found a deal, and they already have something under LOI, and they’re coming to us more opportunistically, that can be different, of course, and those terms are negotiated more on a case by case basis. But even in those situations, it helps to know kind of what is market and what does a standard structure look like so that you have context on these are the two or three things that I really want to change or negotiate or push back on or whatever it may be.

Alex Bridgeman: So, switching over to one month after search, so the first 30 days after raising your capital, starting to search. Alex, I know you’ve thought a lot about what that initial couple phases look like in terms of your technology, cadence, kind of daily set of activities and whatnot. I’d love to hear your thoughts on the tools you’ve been using and kind of the cadence you’ve set up for yourself within that first month or so.

Alex Thinath: Yeah, and a lot of this might be because I am overly structured on myself and I need help. But I even did something like I wrote this long google doc, just search process playbook. What am I doing, the whole thing, daily, weekly, monthly, what are the activities. There’s even guiding principles at the top of this. I’m not saying you have to do this, but it was really nice just writing it all down. I think writing is thinking, and it helped prepare me a lot. But let’s say, we’re in month one, you’re just starting, I think a couple important things to do would be just getting your search tech stack set up. I would not spend too much time on this. It’s very easy to just- there’s a set standard of your CRM, what you use to send emails, LinkedIn, things like that. Don’t go too crazy. Just make sure it works and does the functional minimums that you would like. For example, I just am using HubSpot for mostly everything. It’s my CRM and to send emails. It works. You should just not be spending too much time there. I think what does help, though, is your weekly or daily cadence. So again, perhaps this is overly structured, but it’s just how I think. I’m more of a- there’s a weekly cadence where all my emails go out on a set day. I do all my set industry research and list building on days, maybe this shifts slightly, you can’t schedule phone calls on certain days, so those are just peppered throughout the seller facing phone calls. So even just figuring out what works for you in that structure. I think testing the tech and just making mistakes there in low stakes ways too, whether that’s, I don’t know, sending an outreach cadence to your friends first, that’s always good. There’s going to be so many things that it’s- save the embarrassment for people you know, when the email says, “Dear first name,” make sure that doesn’t go to the guy who’s the leader in the industry you’ve been most excited about, that type of situation, always good to avoid. That said, you have to send that first actual outreach sometime. One thing that I’ve liked here is, and I’m doing, again, software oriented industry lead search, assigning a somewhat arbitrary value of like a ranking of when do I want to reach out to this person within an industry, let’s call it a fit quality score. So it’s just one, two, or three, and I will try to sequence it where I’ll reach out to the people that are probably the least fit, whether that means maybe they’re too small of a company or I think they’re too big, or whether or not exactly in the space I want them to be in. They have five employees on LinkedIn, they’re probably too small, I’ll put them in the contact first bucket. Versus this other example I gave of it’s the industry leader, you know this person’s got a great company, and this would be fantastic. You should have your act together before that conversation. So you can almost learn from the other folks who maybe aren’t a good fit, you aren’t a mutual fit for each other even. I think that’s good and kind of ties into the making mistakes point as well. I think setting up a reflection process is pretty useful. I’ve been doing it every six weeks. I would just check basic funnel metrics. In my case, it’s how many new outreach is being sent per week, reply rate, new owner conversations per week, and then new in person meetings scheduled, just since those are more rare, you can’t actually count those on a weekly basis. It’s just good in the beginning to look at that, see how you’re doing, see how you’re trending. I send those to the investor group, too. But in a reflective way, I think I get more use out of it than the investors to be honest.

Nikita Sunilkumar: Yeah, those are fantastic. I think the couple small ones I would add are thinking about positioning yourself to sellers. You’ll put together a website as part of this initial setup as well. So we’ve had some conversations recently about how do you present the persona that you really want to sellers via the website? Do you put links into your emails to direct them to a particular page, for example, maybe that talks about their industry? Do you- we had this conversation with some of our searchers who are veterans, include a picture of yourself in uniform because that’s something that might connect with folks and certainly builds a lot of credibility and signals a great background. I think the other part that we’ve been thinking about is, and we offer to do this with all of our searchers, is really looking at the language of your emails because I think we’re all used to getting these sorts of form emails that are almost like fake cheerful and sort of like quirky but kind of weirdly quirky and somewhat annoying. So, you don’t want to be on that end either. But you also don’t want to sound like a robot wrote your email. So, there is a sweet spot in the middle of saying how much personalization do you want to include? Actually, I think we pulled some of our searchers, and I think the ideal number of items to personalize in an email might be two or three. If you’re personalizing more than that, you’re potentially spending too much time on each email. Or I like Alex’s approach of maybe you’re segmenting your lists and saying there’s a handful of folks that are really, really critical or really, really important in this industry that I want to spend a lot more time personalizing outreach to, but everyone else, maybe they just get sort of a generic thing with a couple of elements that are personalized to them. Within the first month, you may not know all of this yet, and that’s totally fine. I think we try to connect with searchers in that early phase and work on one thing at a time. Maybe one time, we’ll talk about looking at emails and just redlining and giving some feedback. Maybe another time we talk about the stats, like how are things going, what’s your funnel look like? What are response rates? I really like the reflection item, too, because it’s easy to kind of get too deep on any one of these things and lose a lot of time. And what you want to make sure you’re doing is giving yourself opportunities to come back to baseline and just try something else if it’s not working. And then the last piece is, and we’ll talk about this, I’m sure, later, is the team. Are you going to have interns? Are you going to have help on any of these particular things? People have different approaches, and that’s fine. But I would not feel obligated to go build a giant team right off the bat on day one because that will take a lot of your time and a lot of energy to get right. And so maybe adding folks as you need them and really refining that as you go is the approach you want to take. There are folks who have really big intern teams, and that’s fine. And if that’s sort of the way you’re used to working, that’s great. But I wouldn’t feel like it’s a necessity by any means.

Alex Thinath: Quick comment on that, too. I had a couple of interns. I waited until month three, I want to say. And the idea was I actually myself don’t know what works yet. And then I’m going to be telling this group of people what they should be doing. It didn’t seem like it made sense. I wanted to know what worked, where the kinks were, when done by my hand, so to speak, before figuring out the bottlenecks and where I could use help the most because it might vary. In my case, I discovered the bottleneck was how to jump between industries most efficiently. So that’s where I wanted to staff up against.

Alex Bridgeman: Nikita, you mentioned being an investor and redlining and reviewing emails that searchers are sending out. In what other ways should a searcher be thinking about how they describe themselves when talking to not just the potential sellers or CEOs, but experts in the industry or friends of theirs who are asking about their search? Like what are some ways that are helpful to think about when describing the search and like the process and what you’re working on?

Nikita Sunilkumar: I’ll answer this personally as a searcher. I don’t know that there’s sort of a consensus investor view on it necessarily. But it’s really helpful to think like a member of that industry. What are the trends that are really defining that space? What are the things that are going to be top of mind for those sellers? And so, when you’re talking to- I say this because I found my business because someone in my network introduced me to the seller of my business. It was kind of a- it was not a traditional sort of outbound thing. And I had had a thesis around geriatric care and all that and had made that generally known to people in my network. And ultimately, that was very helpful when I met the seller of my business. So I definitely believe in the power of having a clear idea of what you’re looking for and why. Or you might say, hey, I’m really interested in this particular thesis or this particular thing that’s emerging in the economy or this particular pocket and making that generally known and saying I’m looking for businesses in this space for opportunities in the space. Or if you’re really early on, maybe it’s just I want to learn more about this space and kind of refining that as you go. Because as you get to know more, you’ll have that sense of this is really where those critical points are in the industry that is on everybody’s minds. And then when you put that into an email to a seller to say, hey, I saw that you were featured in this magazine because you figured out this very cool thing about your industry, or whatever it is that you’re using to personalize, that can be super powerful because it’s coming from someone who understands them and what they’re doing every day, as opposed to sort of a generic message that I’m sure they get every day from private equity firms saying, I’m so and so and I would love to talk about acquiring your business. So that would be the approach I would take. I think there’s others, certainly, especially if you’re looking at maybe the handful of companies that are in a particular part of the country that you know well or that you’ve lived in, that can be another factor to personalize. Maybe it’s folks that are in an alumni network of a school that you’re affiliated with, or there’s all these different elements of personalization that you can go figure out. And this is a great project for interns, go look up this list of 500 people, look up one sort of unique thing about the top 200 or something like that can be a good way to approach it.

Alex Thinath: In the first few sentences, it needs to be clear that you have some apparent connection to the industry or you already are in the industry. Other than that, they’re probably just going to delete your email or ignore it. I can’t overstate how many emails they get. You will almost never be the first person to email them. You’re probably not even the first searcher to email them. So, they might not actively be debating things with another searcher. But they’ve heard it all before. And especially if the company is in a great industry or has any size or quality to it, every single week, literally every week, they will get an email from a fund that talks about how high quality their capital is, and you like our quality capital. And that just drives the founders crazy. So, you have to- I actively deposition or poke fun at those types of outreach. I even say that in my email, which is something to be very aware of. It really has to stand out.

Alex Bridgeman: You talked earlier about if it’s not genuine, people are going to notice and it’s going to come through as more finance private equity, and not quite this genuine connection that you’re trying to create with an owner.

Nikita Sunilkumar: I’ll just say the part that was interesting is so I did receive these messages when I was working at the company that I acquired. So, as much as you can put yourself in the headspace of a seller and kind of understand what they’re looking for and how- sort of on the plus side, it gives you a lot of insights. On the negative side, it kind of makes it clear how busy they are. And you’re really trying to thread a very sort of tiny needle in terms of getting in front of them when they have the headspace to be able to kind of give you the 30 seconds of their time to read that email and actually respond. So, maybe this is another reason to spend time talking to CEOs and talking to business owners before you start your search is really putting yourself in that headspace and understanding what it is you’re trying to accomplish from the other person’s perspective.

Alex Bridgeman: Moving into six months down the road, so first six months are over, you’re kind of working six months out from now into your search. Alex, you mentioned earlier that this is kind of the point where you should hopefully be hitting kind of a groove and a steady state within your search. What does that start to look like and feel like, and how do you know if you’re getting into that groove or not?

Alex Thinath: I think for me, yeah, it was mostly around two things. The search funnel metrics and mostly stabilized, like they’ve improved and just have stood where they are and they’re static at a good level, sustainable level that shows things are working. So just 25, 30% reply rates, things like that, where okay, if I keep this going the whole search, this is good. This will make me- odds are good, not 100% that this will help me land something. And I just felt like I didn’t have to think about what I was doing anymore. Just automatic. Even on these phone calls with sellers, the talking points are down, I know what I’m going to say, I know how to phrase it, it just felt natural. And that ended up being around the six month point. And I’m not too far past that. But even at month six, you still might not be seeing benefits, I’d say, from your initial owner or seller conversations. These things come back around a year later even. Maybe you caught someone at the wrong time, or someone you had a good conversation with caught up with their friend over Christmas and that person actually wants to sell. So, there is a, even though you’re on month six, you’re probably not actually harvesting some of the longer term relationships that you should be building at that point. Probably only then would it be reasonable to start recontacting someone from right when you started your search. You could ping them every three months. Maybe that’s better. But they could also just say, dude, I just talked to you. I’m also not selling this month.

Nikita Sunilkumar: We do find that at the six month mark, most searchers have run through kind of their initial thesis ideas or niches that they put in their PPM, that they probably yielded enough to run a few campaigns, two or three campaigns. And one thing that I did with some searchers recently was think about how do you make that ideation process repeatable? If you have a team by then, maybe you have a couple of interns that you can bring in, all sit together and say how do we map out the universe of all the things that really fit under the thesis that we started with? How do we get creative about building lists and refining those lists and sort of putting the finer level of detail into that work? Initially, it may have just been oh, well, I went to Grata, and I found the 300 companies and I just sent emails, that’s fine. But at some point, you start saying, okay, well, now I’m really narrowing down on these particular niches within this particular pocket. And now I’m starting to think about, well, who are the industry experts here, who are the river guides, who are the associations that really are meaningful and have a lot of voice in this space. So that kind of stuff, if you’ve thought about your search as something that evolves, that’s the natural evolution at the six month mark, I would say, is really putting that second layer of detail and understanding into the industry, some niches that you’re looking at. Sometimes it’s tempting to say, well, nothing here is working. I’m just going to throw it all out the window and then go look at something completely different in a new part of the industry or a new part of the economy that I don’t know anything about. It’s not to say you can’t do it. But ideally, you started with a big enough sort of world of options that you can filter down and narrow down or look at adjacencies where a lot of the knowledge that you’ve built up for the first six months is still helpful, you’re just taking a slightly different lens at it. And that can still be powerful. You may be saying, I’ll give a healthcare example here, you might say, well, I’ve worked in this part of healthcare, but now I’m pivoting to this part of healthcare. Hey, seller ABC, this is the experience I have or knowledge I have from this industry, I would love to learn how it applies to your industry or to your subsector or whatever it is, just to start over in terms of building that industry knowledge. If you have a chance to do that, even before you start your search, of thinking about how will I pivot, how will I move to adjacent pockets in a systematic way, that can be super powerful. And it will save you time, especially when you’re in your two year search, every week and every month can feel really important. And if you don’t want to lose that time, having that process predefined is great.

Alex Thinath: Another way I’ve thought about moving between adjacencies, which applies really when you’re doing a more industry led search, you can think of it as shifting horizontally or shifting vertically. To stick with the healthcare example, I’m looking at practice management software for senior living care. Maybe I look at practice management software for optometry. Or maybe I look at other software that could also be sold to senior living care. So that’s what I mean by horizontal and vertically. You stick with the same end user or buyer, or you stick with the same product and shift over.

Alex Bridgeman: Alex, you had a couple comments too around KPIs to focus on during search and certain benchmarks to hit that could tell you quantitatively like are you on the right track? Is your search progressing the right way? You’ve mentioned a couple throughout just our conversation here. But what numbers do you track? And what benchmarks do you compare those against to measure your progress?

Alex Thinath: Yes. And the caveat here, someone showed me this before I started my search, three or four different actual searchers’ funnels. And it’s funny because they all end with you acquire one company, and maybe they gave out three LOIs, five LOIs each. So, at the bottom of the funnel, it is all the same. It’s the higher stages that were pretty different. And it all ties together. I keep talking about if you’re doing industry led or not. And that how that connects here is, I’ll be a little disparaging and say industry lead versus a spray and pray or higher volume approach. So, I’ll speak for myself here. I’m only sending 50, 60 new owner outreaches per week. So net new people I haven’t spoken with before. That doesn’t sound like a lot. But when you have something meaningful to say to that person, it’s tough to hit even that. Where you get the value is that I’m also at 30%, even slightly higher, reply rates. Whereas if you are a BDR at a normal company, and your BDR says she’s getting 30% reply rates, you’d say, holy crap, that’s nuts. But it’s because you have to put a lot of work in to get that. And I want to say it’s six new phone calls per week. And I have been below my target there for the whole search. But what can I do? That’s works so far. And then I think if you’re meeting with someone in person, the number I was given was once a month, that’s good progress. I’ve been higher than that recently. But again, quality versus the volume approach. And then another benchmark I’ve heard before is four or five total LOIs throughout the entire search. So, you giving out an LOI, not necessarily, it could be rejected, or obviously it’s something in diligence comes up, whether you kill it or they kill it, five total LOIs. I’d be curious, I’ve only seen one journey and just heard anecdotes, what Nikita, what you’ve seen from others.

Nikita Sunilkumar: The number I’ve heard is actually even lower, but that might have been executed with like one to three LOIs in a two year process. So yeah, it’s not far off. Yeah, I will say from the sort of investor side, it doesn’t- I can’t speak for everyone, obviously. But the funnel is important in the context of the searcher’s approach, their own kind of progress from day one on to month six or whatever it is. And then just I think we’re looking for really crazy outliers. If you’re saying you’re contacting 20,000 companies in a couple months, it’s like, okay, well, we probably will have a chat about how are you filtering? What industry is this? What’s sort of going on here to make the funnel look like that? And then the really kind of meaningful conversations happen when we start talking with searchers about targets, about specific conversations. And this is a great time to include your investors when you have sort of that- you’ve had the initial seller call, and you think there’s a promising approach here. There’s either something sort of about the company or the industry that’s interesting to you that you want to run past the investor group. Great time to call your lead investors and say, hey, can you give me quick feedback on this? And then say, how do you- share with us how you’re planning to approach that next call. Or maybe we talk about what are the three questions you want to get answers to before the next call or on the next call? Those are pretty critical junctures where even 30 minutes or an hour with a seller can make a big difference in whether or not that deal has a future. So, use your resources at that stage, and we’re happy to give you everything that we can to help as well. One thing that I think searchers may hesitate, and I certainly did when I was a searcher, is asking for tactical help on putting together an LOI or asking the questions of anything you don’t understand in the structure of that LOI, or which terms would you prioritize and why? Don’t hesitate, definitely ask all those questions upfront because the better informed you are and the better sort of position you are in to guide your seller through that process, the more likely it is that you’ll be able to get through kind of all of the ups and downs of what might come next if you do get a signed LOI. So, please don’t- I’ll sort of say this to everybody that we work with, and certainly other investors I’m sure would echo, don’t hesitate to just ask those questions upfront. It can save you a lot of heartache and effort on the back end. Specifically like networking capital, for example. It trips everybody up. And it’s fine if you just need someone to walk you through how to think about it in the context of a particular business. We’re happy to do that.

Alex Bridgeman: We’ve also touched on hiring interns and other outside help during the search. I’d love to hear from each of you on utilizing interns or some folks have used virtual assistants or other folks along the way to help in their search. Nikita, maybe starting with you, what do you talk to searchers about? And what kind of guidelines do you have for using interns that have been really helpful for folks?

Nikita Sunilkumar: Yeah, this, again, is going to be more informed from my personal experience. It really helped me to have interns that came in with a very specific goal in mind, as opposed to having sort of a general team of people that I then had to figure out how to deploy. I went out and said, okay, I need someone to do a lot of the sort of basic data cleanup and data entry stuff that’s needed to build lists. So, for that, I went out and went to Upwork and just got a $5 to 10 an hour sort of offshore person to just clean up a lot of things, get me emails, start working on building some personalized details about folks on the list, that kind of thing. The second part that was helpful to me was getting help on digging into industry research and getting sort of a unique perspective on that. And for that, undergrad interns that are later in their undergrad careers can be great, maybe pre MBA. There’s some different categories of folks there that can be really good. And having them go out and, say, pull the sort of 10 headlines that are relevant to this industry, give me a summary of what I should know, that can be a great task. For the actual work on my sim and my model, I actually recruited folks from my MBA program. And that worked out great. Different programs have different structures where they might have class credit that they offer to people who work with searchers, or maybe you go to the club, the ETA clubs and say, hey, can I get someone to work with me for a few weeks. It’s super valuable experience for both parties. So ideally, there’s a lot of takers for this type of experience. For prospective searchers, no better way to see what you’re getting yourself into than just spending six weeks working with someone who’s in the throes of it. And the other thing, the nice thing about that is there’s sometimes a lot of folks who say I can’t do search because I don’t have deal experience, or I don’t feel comfortable modeling kind of all these things around an LBO model or whatever it is. Or they may say I’m just not good with- I feel like I can’t get up to speed on this industry, or whatever that is. You can address those things and sort of play to your strengths in your search. And it’s vital that you do that, actually, because you’re going to do that as a CEO, for sure. So, in your search, maybe think about, okay, if you’re not super comfortable with a model, one, you don’t need to be. You will understand the dynamics of a business well enough to put together a model, I assure you, if you’ve spent that much time looking at it. And so, an example I’ll give is, what I did was I built the model very simply to say, hey, these are the key drivers of top line revenue. And then this is the cost stack that really affects the bottom line. So here’s the five things that I really want to be able to manipulate here to understand how this business operates. And then the person that came in to help me was an MBA student who had a prior private equity background, had worked in a PE firm, was really great around the modeling piece, wanted to see what it was like on the search side and came in for a couple of weeks to really take what I had started and just put it in a really professional format and give me something that I could work with. And it was fantastic. And it was a super, super helpful step. And I’m very glad I didn’t have a bunch of people, like I said, where I wouldn’t have known what to give to which person to kind of fit their strengths as opposed to saying I know what I need, let me go find the person to fill that need specifically.

Alex Thinath: In my experience, what you call the virtual assistant, someone on Upwork or Fiverr, who can help with data cleanup or data prep, those people are invaluable. Got to have one of those. One little tip that I found useful here, very tactical, make a test, essentially. I had a Google Sheet with 100 companies on it, and I wanted to populate the number of employees, that type of information. I did it myself. And then I deleted the information. And then I sent that out to Upwork and said, hey, could you fill this out for me? So, you can check accuracy. And you can check how much people bill you as well. So you can have someone who’s like, hey, I did this all, it’s 100% accurate. And I only charge $6 an hour, or someone took two days, and they want 20 bucks, that type of thing. A lot of these people have great tooling themselves. They have scrapers, they have LinkedIn premium, that’s how they’re actually getting this information. So got to have one of those, in my opinion. The interns, whether undergrad or MBA, I think that’s a mixed bag. It really just comes down to, in my opinion, just being as specific as possible about where you think they can plug in once you’ve done it before. I don’t want to say this is a consensus. But at least the searchers I’ve spoken to didn’t get a ton of value out of that type of intern, the call it US based undergrad or MBA student. But everyone got value out of a remote resource.

Alex Bridgeman: Any last closing thoughts on starting up a search from either of you for closing out the episode?

Nikita Sunilkumar: There’s a lot of detail here, a lot of tactical things that we’ve talked about. I think one of the nice things about the search process is you see a little bit of everything. And I really cannot think of any other kind of career path or option that gives you such a wide exposure to so many critical things that are necessary for any business. And I would say that about the search and about the operating phase for sure. So, it’s a lot, but the year or two- the year you spend preparing and the couple years you spend searching, no matter what happens, you’re going to walk away with just some incredible skills that will be just super powerful no matter what happens after that.

Alex Thinath: Yeah, that’s great. It’s hard to top that. I would say try to be as thoughtful as possible. Figure out if this is something you do want to do. Talking to other searchers or newly operating CEOs, it’s really the best thing you can do. Especially if you’re a solo searcher, it’s tough. You’re out there on your own, not at all glorious. And then when you’re operating, it continues to not be glorious because a lot of people are writing and depending on you to take this company in a new direction or more successful direction or whatever you want to call it. So, it’s a tough journey. So good to have a lot of thought underpinning how and why you want to undertake this.

Alex Bridgeman: Yeah, certainly. Well, thank you both so much for participating in this episode of the Launch Series. So I really appreciate your time and insight into starting up a search. This was really fun.

Alex Thinath: Thanks. It was great being here.

Nikita Sunilkumar: Thank you for having us.