Royce Yudkoff

For a searcher, there are two big risks. One big risk is failure to find. And the other big risk is buying a really terrible business. And the first risk is that you might spend two years of your life bouncing around from one thing or another and you just never get a deal done. It could be that you've had two signed LOIs.

For a searcher, there are two big risks. One big risk is failure to find. And the other big risk is buying a really terrible business. And the first risk is that you might spend two years of your life bouncing around from one thing or another and you just never get a deal done. It could be that you've had two signed LOIs.

Both deals are broken and that happens probabilistically to some fraction of deals. The due diligence doesn't work out. The seller decides in the end they don't want to sell. The results turn out to take a nosedive during the due diligence process. And so there needs to be a price adjustment. So the deals fall apart. So I would say the failure to find risk is a real one.

Both deals are broken and that happens probabilistically to some fraction of deals. The due diligence doesn't work out. The seller decides in the end they don't want to sell. The results turn out to take a nosedive during the due diligence process. And so there needs to be a price adjustment. So the deals fall apart. So I would say the failure to find risk is a real one.

It's really interesting because there are different views on what this failure to find risk is just statistically. For the bigger funded searches, that number seems to be bigger than 50% suddenly, right, Royce? And that's really a change. It used to be hover around a third.

It's really interesting because there are different views on what this failure to find risk is just statistically. For the bigger funded searches, that number seems to be bigger than 50% suddenly, right, Royce? And that's really a change. It used to be hover around a third.

But now, because people are buying bigger companies, as we talked about before, they're now competing head to head with strategics and private equity. And they don't always win those. They don't have the lowest cost of capital. So they have to be bringing something else in to win those battles. So those numbers are pretty high, the failure to find.

But now, because people are buying bigger companies, as we talked about before, they're now competing head to head with strategics and private equity. And they don't always win those. They don't have the lowest cost of capital. So they have to be bringing something else in to win those battles. So those numbers are pretty high, the failure to find.

I would just say on the unfunded searchers, if I could, the failure to find risk seems to be much, much smaller. So it seems to be less than 25%. Now, Royce and I like to think that it's because our students are just better educated. They're better searchers than the people from that other institution on the West Coast. Who knows? But they're looking for very different things.

I would just say on the unfunded searchers, if I could, the failure to find risk seems to be much, much smaller. So it seems to be less than 25%. Now, Royce and I like to think that it's because our students are just better educated. They're better searchers than the people from that other institution on the West Coast. Who knows? But they're looking for very different things.

They're not looking for high growth. They're looking for boring businesses that have steady recurring cash flows, businesses that have sustainable profitability, enduring profitability is the term Royce and I use. So it's a very different business. You're not growing at 30%. So that's the one risk from the search or failure to find. And it depends on what you're looking for.

They're not looking for high growth. They're looking for boring businesses that have steady recurring cash flows, businesses that have sustainable profitability, enduring profitability is the term Royce and I use. So it's a very different business. You're not growing at 30%. So that's the one risk from the search or failure to find. And it depends on what you're looking for.

On the getting stuck in a bad company thing, that may be the bigger risk. It actually doesn't happen very often to our experience. Now, certainly there have been deals where entrepreneurs have worked really hard and not made a lot of money in the deal. But generally, it's because the world has somehow changed, not because the business they bought was fundamentally bad.

On the getting stuck in a bad company thing, that may be the bigger risk. It actually doesn't happen very often to our experience. Now, certainly there have been deals where entrepreneurs have worked really hard and not made a lot of money in the deal. But generally, it's because the world has somehow changed, not because the business they bought was fundamentally bad.

It's an oil service business that's purchased just as oil falls off a cliff. Generally speaking, though, I don't think people are buying bad businesses because I think it's hard to buy a bad business and get it through the due diligence process and get it financed both through the banks or... through equity holders.

It's an oil service business that's purchased just as oil falls off a cliff. Generally speaking, though, I don't think people are buying bad businesses because I think it's hard to buy a bad business and get it through the due diligence process and get it financed both through the banks or... through equity holders.

So I think investors provide a pretty good gatekeeper for getting stuck in a bad business. I can't say it never happens, but it doesn't happen as often as you might think. Now from investors, Royce.

So I think investors provide a pretty good gatekeeper for getting stuck in a bad business. I can't say it never happens, but it doesn't happen as often as you might think. Now from investors, Royce.

It's hard to get a zero.

It's hard to get a zero.