- After earning his MBA from Harvard University, Gaurav Singh founded a fund to buy software companies.
- He turned to search funds after struggling to succeed at a startup.
- Singh saw a search fund as offering a path to leadership and flexibility.
While earning his MBA from Harvard Business School, Gaurav Singh worked on developing a tennis coaching app, but it didn't gain much traction among venture capitalists.
The app ultimately failed, and after graduating, he spent a year and a half working at an artificial intelligence startup in Toronto before exploring other options, eventually landing on an increasingly popular option among top MBAs and entrepreneurs: starting his own search fund.
In February, Singh, 31, founded Gaddi Growth, a Toronto-based search fund focused on acquiring SaaS companies with at least $5 million in annual recurring revenue.
Low salary, but high income potential
Search fund founders like Singh raise money from investors to buy and run privately held companies, such as manufacturing, home improvement and transportation companies.
Investors poured $2.3 billion into search funds between 1986 and 2021, a fraction of the money that went to private equity firms, according to a 2022 report from the Stanford Graduate School of Business. They generated about $9.8 billion for investors and $2.4 billion for entrepreneurs, according to Stanford.
And these funds are becoming an increasingly popular career choice: Through 2013, an average of fewer than 10 funds were launched per year, according to a Stanford report. By 2020, 66 funds had hit the market. A third of the fund founders Stanford called “searchers” had recently taken a business school class on entrepreneurship by acquisition.
In a sense, search funds are like mini-private equity firms that target small businesses with few employees that serve a local market and may own multiple businesses. Investors typically guide the day-to-day operations of the search fund.
Singh said he has raised $600,000 from investors over the next two years, an amount he can use freely to pay for salary, travel and company expenses — more than the median of $425,000 raised per person in a Stanford University survey of job seekers in 2021.
His fund is backed by 12 investors, including investors who specialize in search funds and private equity firms that he pitched, and he is currently in negotiations to acquire two companies.
Exit strategies could include selling the restructured company to a larger private equity firm, going public, or buying out shares from the original investors and continuing the business.
For Singh, running a search fund means making less in the short term than his Harvard Business School classmates working in consulting or private equity.
“The reason I'm doing this is because I'll probably make $5 million at the end of the day if I sell it,” he said of selling the companies he's acquired.
He chose a search fund for three reasons:
Changes in the search fund business
The search fund typically buys small Midwest HVAC companies rather than technology companies.
“Historically, people in the technology industry have stayed away from search funds because they weren't interested in them,” he said. “In the last few years, software has become popular in the search fund space because everyone can benefit greatly.”
He said there's a “huge opportunity” to find legacy software companies that could benefit from new or more efficient business models, such as projects to transform on-premise software companies into cloud companies or to move one-time software purchases to annual subscriptions.
An opportunity for generational change
Many smaller businesses don't have succession plans and may go bankrupt if they aren't acquired, creating a prime opportunity for search funds to make acquisitions, Singh said.
“The baby boomers are retiring,” he said. “They ran profitable businesses with long-term, loyal customer bases that aren't going to go away.”
Singh said he is especially excited about companies that can benefit from an AI overhaul by automating sales and marketing or expanding their customer base without adding headcount.
driving seat
The search fund is also an opportunity for Singh to work for himself — he wouldn't have had as much hands-on expertise or direct leadership experience if he'd started in venture capital or private equity.
“For me, that was the quickest way to get into the driver's seat,” he said.
He can work from anywhere in the world, giving him the flexibility to spend time with friends and family, including his young daughter.
“As an entrepreneur, you work harder, but how you work and where you work are completely different,” he said.
Singh said that out of his Harvard class of about 800, he knows about 20 MBAs who have started search funds.
