MBA Students Pitch Themselves as the Next Great Investment
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What is the main topic discussed in this episode?
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Here's your money briefing for Friday, April 8th. I'm J.R. Whelan for The Wall Street Journal. Traditionally, business school graduates with dreams of leading a company might climb the corporate ladder or even start their own business from scratch. But many MBAs are aiming higher, pitching themselves as an investment for an existing company that they can then take charge of.
Before graduation, before their search for a company formally begins, they basically pass the hat to a team of investors, and that money would finance up to a two-year full-time search for a company to buy and then lead.
On today's show, we'll talk with our business education reporter, Lindsay Ellis, about so-called search funds. We'll also hear from one MBA who went through the process herself and is now the CEO of a health logistics company. We'll break down this alternative path to a post-MBA career after the break.
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Thank you so much for being with us. Thank you so much for having me. So Lindsay, help us understand how this whole search fund process works. It almost sounds like what we know as a SPAC.
It is somewhat similar. So a SPAC, a special purpose acquisition company, would be something that raises money and lists its shares to go public and finds a private business to merge with. In this case, it's not a business that's being taken public. It is a MBA student who's looking to acquire their own company. And so before graduation, before their search for a company formally begins, They basically pass the hat to a team of investors. One student could raise about $500,000.
What are search funds and how do MBA students pitch themselves to investors?
A pair could be about $800,000. And that money would finance up to a two-year full-time search for a company to buy and then lead. So it would cover travel to meet with existing business owners. Due diligence, a legal review, and then after the company is identified, the MBA student or the searcher would then acquire it and lead it as CEO.
Okay, so MBAs pitching themselves to run companies, it's a growing trend, but how common is it?
It is still very much a niche concept. The numbers are certainly growing. I think there have been at least 70 identified in 2020 and more in 2021. As one investor told me, that's a lot more than it was previously, but it's still enough people who could reasonably attend a wedding. So it's not an astronomically popular area, but it is one that has been growing in popularity in business schools.
Now, as you mentioned, and as you'd guessed from the name, there's a search involved in finding these companies. So I imagine they might be a bit under the radar. Can you tell us what kinds of companies we're talking about?
It's a great question.
How much capital do student search funds typically raise and what does it finance?
So some of the companies that have recently been acquired are niche. They can operate in insurance sales, security, software as a service, or even spaces like pest abatement and construction. It's companies that are privately held and often the businesses that are most attractive are those that are in growing markets and have strong recurring revenues.
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Chapters
4 chapters
1
What is the main topic discussed in this episode?
0:00–3:14
2
What are search funds and how do MBA students pitch themselves to investors?
3:14–4:31
3
How much capital do student search funds typically raise and what does it finance?
4:31–11:21
4
How similar is a search fund to a SPAC and how do they differ?
11:21–13:19
Speakers
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