What is ETA?
Entrepreneurship Through Acquisition is a well-proven model, where an aspiring entrepreneur (called a searcher) raises a pool of capital to acquire a suitable private company, operate it, and grow it both operationally and financially. The pool and acquisition capital is provided by third-party investors, while the new CEO entrepreneur retains a significant equity share in the business.
The oft used metaphor to describe ETA or the search fund model is Jockey, Horse and Trainer: The Jockey is the searcher who is searching to acquire an established target business that meets his/her own investment criteria. The Horse is the established target business typically with a track record of existing revenues, cash flow, customer & supplier base and with a motivated seller. The Trainer is the investor, advisor, and/or incubator that guides the searcher through this search & acquisition process.
The Proven Search Fund Model
In 1984, the term “Search Fund” was first coined at Harvard Business School. Since then, top U.S. universities, including Stanford, Columbia, MIT and Chicago Booth have taught this alternative approach to entrepreneurship to their students and graduates. Entrepreneurs in Europe, Australia and other parts of the world now practice this model to significantly reduce the risks associated with entrepreneurship.
The ETA model has four main stages:
- Catalyze & Actualize: The searcher develops the investment criteria and a search strategy.
- Search & Acquire: The searcher screens up to 300-500 target companies, meets sellers, narrows the pipeline, conducts due diligence, arranges financing, negotiates purchase price, and acquires the target business.
- Operate & Grow: the entrepreneur assumes the CEO position in the target company and drives value creation through innovation and operational improvements that grow revenue.
- Exit: Liquidity events can occur in several ways, e.g. through a trade sale, recapitalization, or a buyout.
ETA has three types of search funds:
Self-funded Search Fund:
The searcher pays all costs to find the business and investors provide money to buy and grow the business- the searcher is completely alone to figure everything out.
Traditional Search Fund:
Investors provide money to the searcher to find the business and additional money to buy and grow the business- commonly the searcher is left all alone to figure everything out.
Incubator Search Fund:
The incubator provides the critical resources, data and real-time feedback to find the business and solely or with other investors, provides the money to buy and grow the business – the searcher has a group of coaches and co-searchers throughout.
BETA-i adopts the Incubator Search Fund which has the least risk and
is the best approach to enhance the success of its searchers.