Why Create BETA-I?
Successfully finding, acquiring and managing a business is not easy. In fact, it is very hard. The majority of those who choose this path fail to achieve their goals. We designed BETA-I to dramatically improve searcher success. To better understand why we created BETA-I, you need to closely examine the data underpinning the traditional search fund model.
The House Always Wins!
Prospective searchers know that search funds have delivered phenomenal aggregate returns to investors over the past 20 years, according to the Stanford GSB statistics.
But these are investor returns, not searcher returns. Searchers face a much different reality.
THE RESULTS SPEAK FOR THEMSELVES!
31% of traditional searchers fail to acquire a company.
The typical two-year search is a race against time and a dwindling budget. Searchers lose time reinventing the wheel since they have to learn how to search on their own. They lose time pursuing flawed companies. They lose time when good deals fail to close. At each step of their search, they face new learning curves, which significantly compound the risk of failure.
28% of traditional searchers buy a company, but earn nothing.
Searchers buy businesses they should never have acquired. Why? Because they succumb to inadequate due diligence, confirmation bias and anxiety. They lack sufficient guidance through due diligence, deal structuring and close. Then, as new CEOs, they have to fight for constructive investor and board engagement.
The result: 28% of all searchers buy a business but fail to generate any capital gains, leaving the CEO with no financial rewards despite winning initial support from numerous investors. This is a harsh outcome after searching for a company for two years and running it for many more. At BETA-I, we find this degree of failure unacceptable.
Nearly 60% of searchers earn nothing in the traditional search fund model.
So 31% of searchers will not buy a company and another 28% will earn nothing for their efforts. That means nearly 60% of searchers fail outright, and it only gets worse…
Another 11% of searchers who buy a company do not earn enough to cover their opportunity costs.
If searchers spend two years searching for a company and another five to seven years as CEO, they are committing nearly a decade to search. A searcher’s personal financial returns will be far less than other post-MBA jobs if their company only grows modestly under their leadership: there is very little upside if a searcher only delivers 1-2x invested capital. While searchers undoubtedly learn a great deal from buying and managing a business, many will not earn the financial rewards they hoped for, let alone cover their opportunity costs.
70% of searchers earn little or nothing at all in the traditional model!
Even after reading all the studies and combing through all the data, most prospective searchers fail to acknowledge that the traditional search fund model is highly risky, with bimodal outcomes for searchers. Since they were top performers in college, at their first jobs and at business school, most searchers are convinced that they will successfully buy and manage a business. They believe they will beat the odds.
Searchers get one shot at success and the odds are against them. On the other hand, traditional search fund investors play a different game. They decrease their risk by building portfolios of search fund investments. They are “the house” and the house always win.
Black Entrepreneurship Through Acquisition Incubator reinvented search. We changed the rules of the game to tilt the odds in searchers’ favor. BETA-I exists to help searchers succeed. And we explicitly aligned our incentives with our searchers and CEOs so we mutually benefit from investing in great businesses. Read on to learn more!