Ramiro Alfaro, Paltus Capital
Paltus Capital, Current Searcher, Traditional Search
Survey completed September 23, 2020.
Why did you choose your model? Would you make the same choice again?
Because I felt more comfortable already having done part of the fundraising effort done upfront, as well as having an ongoing formal support structure from committed investors. My search is international in Guatemala – as a developing country and relatively new to search funds and PE investing generally, I felt it was important to have knowledgeable local investors that could provide guidance and that I could count on for funding when it was time in an inefficient capital market. Yes, I would 100% make the same choice again.
Are you searching with a partner? If so, why did you choose them? How did you find them? If not, why did you choose to search solo?
I am a solo searcher. I would have happily considered doing a partnered search, but I did not have anyone to partner with that I felt comfortable enough given my search constraints (particularly geographic constraint, Guatemala).
When is the right time to start speaking with investors? How did you select your search and/or acquisition investors?
As soon as possible – at least 6 months prior to starting the search process. I chose investors that I believe would fit the standard searchfund investor criteria – investors willing to be active and with more than just money invested (wanting to mentor, etc.) – but also overweighted for local investors given my search focus. Additionally, I tried to balance the profile of investors by experience/expertise (directors, investors, operators and entrepreneurs) and age, to ensure I had a wide range of support sources for the different stages of search fund investing.
Did you get an MBA before searching? If so, where and why?
Yes. Harvard Business School. I did not know I wanted to search before going to business school – I decided to pursue the ETA path there. I went there because it was an experience I always wanted to live and believe it would provide a good foundation for my professional plans into the future – so far it has been true.
What is your work experience prior to searching?
Primarily consulting – operations and management/strategy consulting.
What industries and sizes of companies are you pursuing?
I am industry agnostic – I have taken a highly flexible approach given that my search is a geographically focused one in Guatemala (small country). There are a few industries that are excluded, but these are more exceptions due to violation of a key search fund investing criteria. Companies with EBITDA between $1M and $5M
Are you doing a geographically focused search? If so, where?
How long have you been searching?
What systems do you use? (CRM, Email Manager, etc)
CRM – Pipedrive, Document management – Dropbox, Email Sequencer – CloudHQ AutoFollow Up, Tasks – ClickUp, Organization – WorkFlowy, Team Management and Communication – Slack
How do you organize your day?
General weekly schedule that is fine tuned and modified periodically. Mondays I set all my To Dos for the week by activity – Admin, Sourcing, Pipeline Management, Deal activity, Team Management, Personal At the end of every day I set my agenda for the next day based on To Dos left for the week.
How do you identify prospects to acquire? Do you use only brokers, only direct outreach, or both?
All avenues, but primarily direct outreach given the nature of the market I am in.
Approximately how many direct outreach calls and emails have you made to owners?
How do you find company lists?
General business databases (Hoovers, OneSource) Trade Associations and other business groups LinkedIn.
Do you subscribe to broker deal lists? Which ones?
Do you use interns? If so, how many? What do you have them do?
Yes. The number of interns has changed over time – I have had 1 to 4. For my purposes, 2 is the ideal number – more than that becomes a managerial hassle. Interns do company searching by all the different methods we have developed. They then pitch the companies that they have identified as attractive for us. If the companies pass the filter, they add them into the pipeline and fill all the important information. They then are responsible for finding the contact information for that deal, drafting the email for outreach, and sending the email. They own the deal until we have had a response from a relevant contact. Additionally, for more senior interns, they assist in organizing information requests on live deals. They also assist in basic business and financial analysis, as well as any due diligence task that they can manage (market research, competitive analysis, comparable analysis, etc.) I am currently grooming my star intern into having some owner calls of not so high ranked deals, to see if I can partly outsource this activity to free up bandwidth.
Approximately how many deals have you reviewed?
How many companies have you gotten to the LOI stage with? How long before your first one?
One. 6 months.
What has been the most challenging part of your search? What was harder/easier than you expected?
It has changed and evolved through time. At first, the biggest challenge is to gain critical mass with regards to your pipeline and searching activities, so you can feel like your plate is full and you are making progress – in the beginning you feel like you don’t have that much work. With this comes the challenge of building a routine/work plan to make it feel like a job more than a random assortment of tasks.
Once that is accomplished, with scale comes the need to build a team and learn to manage and delegate the different operating tasks – this is also challenging. Then getting reps is important but challenging – first call, first meeting, first analysis, first offer, first DD, etc. are very challenging the first time, but get easier and more manageable with time. However, I feel that the most challenging component of searching that is true throughout time is the psychological and emotional toll that the whole process takes on you as a searcher. In a very raw way, as a searcher you fail everyday you don’t buy a business – the result of search is very binary: either you bought a business or you didn’t. Effort is great and important, but it is all for naught if you don’t buy a business. Therefore, it is important to get psychological comfort by creating a process that can generate the feeling of accomplishment, providing the ability to celebrate small wins.
Setting weekly, monthly, or quarterly goals with regards to hitting certain milestones (# of calls, meetings, IOIs, etc.) can help in making the whole process feel like the summation of a lot of small goals being accomplished, and remove the continuous sensation of failing everyday you don’t buy a business. Additionally, with this, comes the emotional discipline and wherewithal to be able to either shut down a deal when you realize it is not the right one (even though the sunk costs may seem enormous) or to be able to quickly detach emotionally from a deal if it falls through because the owners step back.
Harder – Being able to balance finding business that passes the necessary filters to make you comfortable to pull the trigger and buy it, with realizing that no business is perfect and muster the strength to know when something is good enough.
Easier – getting comfortable talking to owners and feeling confident of what you are doing, even though it is the first time you are doing it.
What articles, books, and resources were most helpful to you in preparing to search?
All of Stanford and IESE searchfund materials. MBA courses. HBR Book, Rick & Royce, The Messy Marketplace Book, Brent Beshore, Build Then Build Book, Booth ETA Podcast, Searchfunder, Jim Sharpe’s Blog
What do you wish you knew prior to searching?
How time flies by during search, even though at times it feels eternal
What single piece of advice would you share with prospective searchers?
Understand what it is you are getting yourself into… searching isn’t for everybody.