Acquiring Minds — The Argument for Self-Funded Search

Host: Will Smith
Guests: Jordan Carter & Robert Graham (Search Investment Group)
Date: November 15, 2021

Episode Overview

This episode examines the different paths to buying and operating a business, contrasting traditional search funds with self-funded search and “biz buy sell” buyers. Will Smith is joined by Jordan Carter and Robert Graham, experienced self-funded searchers who now run Search Investment Group (SIG), an advisory and investor group dedicated to supporting self-funded entrepreneurs. Their conversation explores the pros, cons, and defining characteristics of each approach, giving listeners a comprehensive guide to choosing a search path.

Key Discussion Points & Insights

1. Defining the Three Main Search Paths

[02:15 - 09:34]

• Traditional Search Fund:
  • Recently popularized among MBAs, especially at top programs.
  • Raise $300K–$500K from a group of investors for a two-year search salary and diligence costs.
  • Seek businesses with $2M–$8M EBITDA.
  • Investors get significant ownership, usually via the “8 and a third” model: 8.3% at close, more for hitting benchmarks, capping around 22–25%.
• Self-Funded Search:
  • Either part-time (e.g. moonlighting on BizBuySell) or full-time, with capital reserved for 1–2 years of searching and diligence.
  • Typically target $3M–$10M companies, with an SBA 7(a) loan at the core of the structure.
  • Self-funded searchers generally retain majority control (often well above 51%).
• BizBuySell Buyer:
  • Usually solo, part-time, or looking for passive, lower-complexity businesses (e.g., FedEx route, landscaping).
  • Targets smaller deals with less capital and structure.

2. Traditional Search Fund: "CEO With Equity"

[09:34 - 13:19]

• Ownership vs. Control:
  • Traditional searchers rarely retain majority equity.
  • Being a traditional searcher is likened to being a CEO with options, not a true owner.
  • Terms are fixed regardless of deal quality.
• Investor-Searcher Dynamics:
  • Investors have final say; CEO can be fired even for non-cause reasons (e.g., merging with another company).

Notable Quote

"Technically, traditional searching is more like being a CEO with, you know, with equity upside... You're not in control of the business for the most part, the investors really are."
— Robert Graham, 21:54

3. Self-Funded Search: Philosophy and Practicalities

[13:19 - 15:22, 31:34 - 34:55]

• Control and Risk:
  • Major appeal is full operational, strategic, and financial control.
  • Typically use SBA 7(a) loans (up to 90% leverage), putting personal guarantee on the line.
• Lifestyle and Commitment:
  • High self-belief is required; it's a "bet on yourself."
  • No mandate to exit at investors’ schedule or requirements.
• Advantage Over Small Biz Purchase:
  • Owning a $1M SDE business limits reinvestment and management options, whereas a $1M+ EBITDA business allows for real growth and staffing.
• Deal Sourcing:
  • Most quality deals still come via brokers, not just proprietary outreach.

Notable Quote

“If you’re going to take a bet on yourself, actually go all in. No one’s going to believe more in you than you.”
— Jordan Carter, 35:57

4. The SIG Model: Supporting Self-Funded Searchers

[48:18 - 51:57]

• SIG offers both "full-service" support from day one, and “post-LOI” help to close deals.
• They screen for dedication, growth targets, and fit—won’t work with those only after tiny deals.
• Key support includes calibration of sourcing, deal screening ("kill bad deals quickly"), equity structuring, diligence, and investor introductions.

Notable Quote

"One of the most important skill sets in searching is learning how to kill a deal and how to kill a deal fast."
— Robert Graham, 57:11

5. Raising and Allocating Capital for Self-Funded Search

[38:05 - 41:06]

• Typical structure: Searcher might put in as little as $50K for a $5M business; rest is raised via equity and seller notes.
• Additional $150K–$200K+ should be earmarked for living expenses, broken deal costs, diligence, and outreach infrastructure.
• Diligence costs per deal: Expect $25K–$50K per broken deal, with at least two likely before a close.

6. Comparing Risks: Small vs Larger Acquisitions

[42:11 - 46:50]

• Buying a $300K-EBITDA business is nearly as much work, with lower rewards and higher concentration risk, than a larger $1M+ business.
• Bigger businesses have supporting management, more cash cushion, less owner dependence, and room for error.

Notable Quote

“Doing a small deal like that takes almost just as much work as it would take to do a deal that was $2 million of EBITDA... and you’re taking all that risk. Why would you do all that for $130,000 a year?”
— Robert Graham, 43:10

7. Who Makes a Good Searcher?

[31:34 - 33:29]

• Dedicated, risk-embracing, self-confident operators (not just finance types).
• Experience in operating—or situations requiring adaptive, quick decisions (e.g., military veterans)—trump deal-making credentials.
• SIG screens for humility, willingness to learn, focus, and openness to coaching.

8. Probability, Geography, and Commitment

[61:18 - 64:35]

• Traditional searchers searching nationally have about a 33% success rate (per Stanford data).
• Limiting to a small geography reduces chances further. SIG urges at least a large regional focus.
• Success in search is binary: you either buy a business or not—laser focus needed.

Notable Quote

“If a third don’t even find a company, that’s a huge portion of this group... You have to be focused purely on that.”
— Jordan Carter, 64:22

Memorable Quotes & Moments

• “There is no possible way... for you to be majority owner of the company [in a traditional search fund].”
  — Robert Graham, 21:23

• “Once you step into that company... you’ll find it’s not more than you can chew, you’ll be just fine.”
  — Jordan Carter, 46:50

• "You shouldn't be trying to build an expertise in the deal space.You want to be a deal person, go work for a finance company. Don't buy a business."
  — Jordan Carter, 28:10

Timestamps by Topic

| Timestamp | Topic | |-----------|-------| | 02:15–09:34 | Overview of traditional, self-funded, and “biz buy sell” search paths | | 13:19–15:22 | Defining self-funded search and SBA leverage | | 15:22–18:30 | Guests’ backgrounds and path to SIG | | 20:44–24:48 | Pros & cons of traditional vs self-funded search | | 31:34–34:55 | Who makes a good searcher; mindset differences | | 38:05–41:06 | Breaking down capital needed for self-funded search | | 42:11–46:50 | Risks in buying small vs larger businesses | | 48:18–51:57 | SIG's support model for self-funded searchers | | 53:02–56:01 | Likelihood of deal closing, deal sourcing best practices | | 61:18–64:35 | Geographic scope and searcher focus required for success |

Final Takeaways

• Self-funded search offers majority control, higher risk and reward, and suits operators willing to bet on themselves.
• Traditional search funds trade control and upside for salary, support, and (relative) safety, but often have rigid structures and exit timelines.
• SIG exists to fill the mentorship, investor, and process gap for self-funded searchers, aiming to drive more successful entrepreneurship in the lower middle market.
• Sizing up isn’t just about ambition; larger deals give better margins for management, cash flow cushioning, and lower relative risk.
• Absolute focus, humility, and learning from experienced operators are critical to closing that all-important first acquisition.

For more on the episode or to contact the guests, visit searchinvestgroup.com or Acquiring Minds.
You can find the full episode on YouTube here.