4 ms·

This exercise is poor because it's totally unrealistic. I work with a lot of investors who buy "a $1.5 million EBITDA company for 4x paying $6 million and using

by mbesto 10y ago

This exercise is poor because it's totally unrealistic. I work with a lot of investors who buy "a $1.5 million EBITDA company for 4x paying $6 million and using 50% debt financing". But they are organizers/firms that split carry among the firm. AFAIK, if you're not working for a PE fund, this type of investment structure is only possible if you execute what's called a Search Fund[0]. I personally know a Kellogg MBA who did this, but it was after 2 years of working at a PE firm. The verdict is still out whether he'll make any meaningful return from it. The other person I know who attempted it (from Stanford) gave up after a year because it was too hard to get investment. In other words, the assumptions that any MBA (typically a 26 year old with 2-3 years of real work experience) even has access to this are fairly unfounded and not typical. What is more feasible, is that MBA grads go to PE funds and are part of a deal team. Even then, those opportunities are scarce and require you to spend another ~6-7 years getting to Principal to earn any meaningful amount of compensation ($500k+ year). [0] - https://en.wikipedia.org/wiki/Search_fund https://en.wikipedia.org/wiki/Search_fund

charlesdm 10y ago
Well, this has nothing to do with having an MBA. Understanding most of these concepts isn't really hard. You just need access to the capital, which has a set of challenges in itself. Any entrepreneur who might or might not have an MBA can do this if (s)he has access to the capital. The hard part is making sure you can keep the business running so you can service the debt. The company that Kellogg guy acquired, which sector was it in?
- mbesto 10y ago
  > The hard part is making sure you can keep the business running so you can service the debt. Which, quite frankly, many MBA students in their mid 20's are unqualified to do. > The company that Kellogg guy acquired, which sector was it in? Daycare services.
nostrademons 10y ago
Search funds aren't all that uncommon among top-tier MBA students and graduates. There are a couple going on among my wife's MBA classmates. As a tech entrepreneur, I'm a little skeptical about whether their search will prove fruitful, but they don't seem to have huge problems raising capital. Also, don't forget part-time and executive MBA programs. Students in these tend to skew older (early 30s for part-time programs, mid-40s for executive ones), with 10/20 years of work experience in a relevant industry and deep networks that often include access to capital.
- mbesto 10y ago
  > Also, don't forget part-time and executive MBA programs. Students in these tend to skew older (early 30s for part-time programs, mid-40s for executive ones), with 10/20 years of work experience in a relevant industry and deep networks that often include access to capital. Spot on. I should have clarified... I assumed MBA the author was talking about was the "2 year program for candidates with 3-4 years experience". MBAs (exec MBA, MSx, etc) that require more experience, you're way more likely to see search funds.

by mbesto 10y ago

charlesdm 10y ago

Well, this has nothing to do with having an MBA. Understanding most of these concepts isn't really hard. You just need access to the capital, which has a set of challenges in itself. Any entrepreneur who might or might not have an MBA can do this if (s)he has access to the capital. The hard part is making sure you can keep the business running so you can service the debt. The company that Kellogg guy acquired, which sector was it in?

mbesto 10y ago
> The hard part is making sure you can keep the business running so you can service the debt. Which, quite frankly, many MBA students in their mid 20's are unqualified to do. > The company that Kellogg guy acquired, which sector was it in? Daycare services.

nostrademons 10y ago

Search funds aren't all that uncommon among top-tier MBA students and graduates. There are a couple going on among my wife's MBA classmates. As a tech entrepreneur, I'm a little skeptical about whether their search will prove fruitful, but they don't seem to have huge problems raising capital. Also, don't forget part-time and executive MBA programs. Students in these tend to skew older (early 30s for part-time programs, mid-40s for executive ones), with 10/20 years of work experience in a relevant industry and deep networks that often include access to capital.

mbesto 10y ago
> Also, don't forget part-time and executive MBA programs. Students in these tend to skew older (early 30s for part-time programs, mid-40s for executive ones), with 10/20 years of work experience in a relevant industry and deep networks that often include access to capital. Spot on. I should have clarified... I assumed MBA the author was talking about was the "2 year program for candidates with 3-4 years experience". MBAs (exec MBA, MSx, etc) that require more experience, you're way more likely to see search funds.