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Kim Butler
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Partners for Prosperity, Inc.

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I have 20+ years of handling alternative investments in cash, growth and income for clients nationwide.  I strive to help my clients with all things financial in every way possible over the phone and the web.  I own an alpaca farm which I enjoy working during my downtime.  I also enjoy gardening, writing and reading books.  I also train other advisors on Prosperity Economics.

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Search Funds: Volunteering to be a CEO

Young business school graduates create search funds in hopes of becoming CEOs quickly and efficiently.

| BY Kent McDill

So you want to find a company to buy in order to become a high-level corporate executive, but you don’t have any money. Here’s what you do:

Create a search fund.

Although search funds have been around for 30 years, they are becoming more popular as business school graduates try to avoid the grind of working their way to the top. Instead, they look for small businesses they can take over so they can start out at top.

They invite investors to give them seed money to find a takeover candidate, often six figures worth of money so that the searchers do not have to pull income from other jobs to stay solvent. If the searcher finds the candidate company that is ripe for takeover, he goes back to the original investors and compiles the funds necessary to buy the business.

Once the company is purchased, the searcher builds the company so that it is attractive to other larger takeover bidders, or recapitalizes the company so that it is successful and desirable as a permanent possession.

For the investor, search funds are a way to find a company ripe for takeover and financial gain without doing any legwork.

“If you look at the returns over time, it’s a really good asset class,’’ said Alpine Investors founder Graham Weaver, who has invested in search funds. “It’s also a great way to be a CEO at a young age.”

Stanford and Harvard Business schools have produced numerous search fund operators who are clearly attempting to avoid the familiar career path to success. But it is also clearly an iffy proposition.

RELATED: Women in Business School: More, and not Enough

Usually listed as a limited liability company, search funds operate under a schedule that can take 10 years from initial investment, through target identification and acquisition, to growth and eventually resale.

On April 2, 2014, Harvard hosted its first Search Funds Conference to promote the concept. “We’re seeing a huge interest in search funds,’’ said Harvard Business School career development official Kristen Fitzpatrick. “More people are going down this road.”  

A recent study by the Stanford Graduate School of Business reports that 21 percent of all search funds have folded without making an acquisition, while 11 percent bought companies that shut down without providing any investment return. In those cases, the money invested in the search fund is lost.

According to the Stanford study, 15 percent of search fund operators have turned a profit on a company purchased through the fund, while one-third of the search funders are operating companies serving as CEOs.



About the Author


Kent McDill

kmcdill@spectrem.com

Kent McDill is a staff writer for Millionaire Corner. McDill spent 30 years as a sports writer, working for United Press International and the Daily Herald of Arlington Heights, Ill. From 1988-1999, he covered the Chicago Bulls for the Daily Herald, traveling with them every day through the nine-month season. He also covered the Bulls for UPI from 1985-88, and currently covers the team for www.nba.com. He has written two books on the Bulls, including the new title “100 Things Bulls Fans Should Know And Do Before They Die’, published by Triumph Books. In August 2013, his new book “100 Things Bears Fans Should Know And Do Before They Die” gets published.

In 2008, he resigned from the Herald and became a freelance writer. The Herald hired him to write business features and speeches for the Daily Herald Business Conferences and Awards presentations.

McDill also writes a monthly parenting column for the Herald’s Suburban Parent magazine.

McDill is the father of four children, and an active fan of soccer, Jimmy  Buffett and all things Disney.