Rick Ruback

My guests today are Rick Ruback and Royce Yudkoff. Rick and Royce are Harvard Business School professors who teach their students how to search for, acquire, and run small businesses directly after graduation. It's nuts, but it's been almost a decade since our first conversation.

My guests today are Rick Ruback and Royce Yudkoff. Rick and Royce are Harvard Business School professors who teach their students how to search for, acquire, and run small businesses directly after graduation. It's nuts, but it's been almost a decade since our first conversation.

And unlike many past interviews that become outdated due to technology or market changes, the core principles they shared about entrepreneurship through acquisition remain remarkably relevant today.

And unlike many past interviews that become outdated due to technology or market changes, the core principles they shared about entrepreneurship through acquisition remain remarkably relevant today.

They explore fascinating developments in the search fund ecosystem, including the bifurcation between funded searchers targeting larger companies and self-funded entrepreneurs finding success with smaller businesses.

They explore fascinating developments in the search fund ecosystem, including the bifurcation between funded searchers targeting larger companies and self-funded entrepreneurs finding success with smaller businesses.

Rick and Royce share their accumulated wisdom on what makes a company worth buying, why the magic is in the multiples, and how their students consistently achieve impressive returns through patient, value-oriented business acquisition. Please enjoy my second great conversation with Rick Ruback and Royce Yudkoff.

Rick and Royce share their accumulated wisdom on what makes a company worth buying, why the magic is in the multiples, and how their students consistently achieve impressive returns through patient, value-oriented business acquisition. Please enjoy my second great conversation with Rick Ruback and Royce Yudkoff.

Royce, what would you add to that? Well, first of all, I agree that that's the major change.

Royce, what would you add to that? Well, first of all, I agree that that's the major change.

And I'd just like to spend a moment adding to what you said and then offer one additional change, which is that in the United States, we have this amazing opportunity that's created by the SBA loan program where every American citizen has the right to borrow up to $5 million in this government-backed loan program.

And I'd just like to spend a moment adding to what you said and then offer one additional change, which is that in the United States, we have this amazing opportunity that's created by the SBA loan program where every American citizen has the right to borrow up to $5 million in this government-backed loan program.

which allows them to buy an established, proven, profitable business with up to sort of 80% or 90% leverage. And that in turn enables these acquisition entrepreneurs to line up the equity they need, give it a very attractive return, and own 70% or 80% of the business, even though they don't have any capital but for their sweat equity and talent.

which allows them to buy an established, proven, profitable business with up to sort of 80% or 90% leverage. And that in turn enables these acquisition entrepreneurs to line up the equity they need, give it a very attractive return, and own 70% or 80% of the business, even though they don't have any capital but for their sweat equity and talent.

And to Rick's point, that's proving to be an attraction to many very talented people. The other less important change that I'd add, but still notable, is when Rick and I started teaching 15 years ago and through 10 years ago, our entrepreneurship through acquisition program, everyone who went into it wanted to be an entrepreneur and run their own company.

And to Rick's point, that's proving to be an attraction to many very talented people. The other less important change that I'd add, but still notable, is when Rick and I started teaching 15 years ago and through 10 years ago, our entrepreneurship through acquisition program, everyone who went into it wanted to be an entrepreneur and run their own company.

I think more recently, we've seen a minority stream, but a meaningful minority of people who kind of look at this opportunity as independent sponsors. They go into it. They don't want to run a company, but they want to buy a series of small companies and put managers in. And Rick, I'd say that's a change. It's not as important as the one you mentioned, but it's certainly notable.

I think more recently, we've seen a minority stream, but a meaningful minority of people who kind of look at this opportunity as independent sponsors. They go into it. They don't want to run a company, but they want to buy a series of small companies and put managers in. And Rick, I'd say that's a change. It's not as important as the one you mentioned, but it's certainly notable.

Yeah. From investors, I'll break it into two groups. In the funded search, Stanford has done a good job of tracking returns on funded search through an annual report they do since forever. And it's shown that the returns to investors are in the low 30s of IRRs. So if you compare that to big private equity, the average returns are sort of in the low to mid teens.

Yeah. From investors, I'll break it into two groups. In the funded search, Stanford has done a good job of tracking returns on funded search through an annual report they do since forever. And it's shown that the returns to investors are in the low 30s of IRRs. So if you compare that to big private equity, the average returns are sort of in the low to mid teens.