My Guests
A.J. Wasserstein is the Eugene F. Williams, Jr. Lecturer in the Practice of Management at the Yale School of Management. His research, writing, and teaching concentrates on search funds, entrepreneurship, programmatic acquisitions, and small businesses. In addition to his role as an educator, A.J. is also a private investor in lower middle-market businesses. He was the President of Onesource Water, the third-largest bottleless water service business in the U.S., which was sold to Water Logic, a U.K.-based strategic acquirer, in 2016. Previously, A.J. was the founder and CEO of ArchivesOne, the third largest records management company in the U.S. ArchivesOne was sold to Iron Mountain (NYSE: IRM) after 17 years of operation.
Jeff Stevens is the Founder of Anacapa Partners, a firm with over 20 years of experience structuring, operating and investing in search fund-owned companies. Jeff was an acquisition entrepreneur himself, having managed 3 funded searches during the period from 1990-2005, each one culminating in the acquisition of a SMB. Prior to founding Anacapa Partners, Jeff was the CEO of three venture-backed buyouts – Balkin Cable Holdings (cable television system operator), Ancora Capital (mail presort), and Liberty Fitness (women’s fitness centers). Prior to beginning his entrepreneurial path, Jeff was an Associate Consultant at Bain & Company. Jeff received his Bachelor of Arts and MBA from Stanford University, and remains actively involved in the Stanford community.
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Jeff Stevens & A.J. Wasserstein on The Future of Entrepreneurship Through Acquisition – In The Trenches
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Questions Asked
Growth of the ETA Community
- To what do you attribute the growth of the ETA ecosystem over the past ~5 years?
- Are you surprised that it has taken this long for ETA to lose it’s “hidden gem” status?
- What “inning” do you think ETA is currently in as an ecosystem? Why?
Investors
- Some investors in the ETA ecosystem are now managing funds of $100M+. How do you think this ultimately plays out? What might be the second- and third-order effects of this new “mega fund” reality?
- With the influx of new investors into the ETA ecosystem, there is greater potential for a “free rider” problem, and a greater risk of diluting our culture of cooperation, generosity and mentorship. How can we mitigate these risks, if at all?
- How do each of you think about the composition of a cap table, if at all, when making your own investment decisions? How much do you value the inclusion or exclusion of your peers/co-investors?
The Increasing Popularity of Software Companies as Acquisition Targets
- Within the ETA ecosystem, how and why did software evolve from being frowned upon 10 years ago to being very much supported now?
- Is this a natural & inescapable consequence of software representing a larger and larger share of GDP? Or, as a community, are we at risk of losing sight of what has made the model successful in the first place?
- Should software companies be valued on a multiple of ARR simply because they are software companies? Why or why not?
Other
- The economic terms offered to searchers within the “traditional” search fund model haven’t materially changed since their inception the mid-80s. Is this a good thing or a bad thing? Why?
- How should prospective searchers think about 25-30% carry? How should we contextualize whether its high, low, or perfectly appropriate?
- Are the days of trying acquire SMBs for 3-5x EBITDA gone? Why or why not?
Concluding Questions
- What areas of your professional life do you still feel like you have yet to master? Where do you still feel less sure of yourselves?
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Download Jeff & A.J.’s Paper: “Exploring the Future of Entrepreneurship Through Acquisition“
Thanks to our Sponsors
This episode is brought to you by Oberle Risk Strategies, the leading insurance brokerage and insurance diligence provider for the search fund community. The company is led by August Felker (himself a 2-time successful searcher), and has been trusted by search investors, lenders, searchers and CEOs for over a decade now. Their due diligence offering (which is 100% free of charge) will assess the pros and cons of your target company’s insurance program, including any potential coverage gaps, the pro-forma insurance pricing, and the program structure changes needed for closing. At or shortly after closing, they then execute on all of those findings on your behalf. Oberle has serviced over 900 customers across a decade of operation, including countless searchers and CEOs within the ETA community.
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