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Today’s Rundown

• From 300k to 5m EBITDA

• A searcher’s worst case scenario

• Current state of ETA

• Seven questions to predict ETA deal quality

• 2 deal / launch announcements

Weekly Highlights

• Acquiring Minds published a new podcast episode on the dream outcome: from $300k to $5m EBITDA:

  • Ling’s first acquisition - a tiny commercial refrigeration business doing ~$300k SDE on paper but closer to ~$150k true SDE - became the platform for a 15-year compounding journey, ultimately scaling to ~100 employees and $5–10M+ true SDE today

  • He grew the business from breakeven to $2–3M SDE within ~5–6 years, largely through incremental process improvements, value-based pricing (raising rates from $60/hr to ~$150/hr), and strict margin discipline rather than sales-driven expansion

  • His operating arc included five years of 4:30am–10pm “deep operator” work, after which he built systems, redundancy, and leadership capacity to reduce his own workload to near zero daily involvement while the business continued compounding at ~20% yearly growth under a professional GM

  • Ling financed the first deal using $500k from a ROBS 401(k) rollover, a large seller note, and minimal cash - preferring structures that keep sellers involved, align incentives, and preserve optionality; today he applies strict underwriting that targets 1–3M SDE companies as the safest zone for self-funded searchers

  • Today he backs self-funded searchers using 10–15% preferred returns, 2× step-up, and 2× liquidation, underwriting to 22% IRR at zero growth, and expecting searchers to drive meaningful operational improvement - reflecting learnings from evaluating “hundreds to thousands” of deals and multiple portfolio acquisitions

• In the Trenches, a podcast by search fund investor MINEOLA Search Partners, published a new podcast episode on facing the worst-case scenario: how Jed Morris lost his business and rebuilt his life:

  • For first-time buyers, Jed warns strongly against “cheap turnarounds”: buying a distressed company at 2.5–3× EBITDA is far riskier than paying 5–6× for a robust one when you’ve never run a business and are betting you can both learn to operate and execute a turnaround at the same time

  • On SBA deals (e.g. a $5M purchase), he’d “give away the farm” on equity, happily owning ~65% instead of 85–95% if it means bringing in more capital, lowering leverage, and pushing DSCR to 1.5–2.0×+; he’d rather own less of a healthy company in 4 years than most of an over-levered firm that’s bankrupt in 12–18 months

  • His view on roll-ups has shifted: outside of zero-rate environments, organic growth must underwrite the entire thesis - no M&A in the base case, assume growth is cut in half and you lose some revenue - and only then treat acquisitions as upside; moving too fast (he did his first bolt-on 3–5 days after closing the platform) is, in hindsight, a key mistake

  • Integrations fail on people, not spreadsheets: a small business is a direct reflection of its owner, so he now diligences integrity and reputation heavily (background checks, local “gossip,” supplier views); in 40+ interviews with failed buyers, he estimates >60% of collapses involved the seller actively harming the business post-close (integrity issues beating cash flow as the #1 driver)

  • For self-funded searchers, he advocates searching on the side while employed to avoid “search stress” and bad decisions around months 18–24, when sunk costs (e.g. $10–20k QoE spends) and public identity as a “searcher” push people into marginal deals

• Franz Purucker, an experienced founder, shared his opinion on the current state of ETA:

  • After screening ~200 IMs, doing >10 site visits, 2 deeper DDs and ultimately 0 closings, Franz concludes the ETA opportunity is real (succession gap, tech lag, ultra-sticky SMB customer relationships), but nowhere near “risk-free returns”

  • Based on historical data and current trends, he estimates ~50% of search funds fail today, and with aggressive add-on strategies, rising multiples, and many first-time operators coming from consulting/banking, that failure rate could drift toward 60–70% (still better than the 90%+ startup failure odds, but far from a cheat code)

  • The standard exit logic of multiple arbitrage via roll-up looks fragile: stitching together several small companies with different cultures, comp structures, and contracts often creates operational nightmares, and operators of small-cap PE platforms suggest the “buy small, sell big multiple” story may fade in many verticals

  • Some VC-backed ETA plays underwrite 15–40% EBITDA margin expansion via deeper tech and operational improvement instead of relying purely on multiple uplift, but in “red hot” niches (e.g. certain property management or AI verticals) capital is already chasing deals at near software-like multiples - pushing entry prices up and increasing the odds of overpaying

  • The author sees lean, decentralized HoldCos with very high bar for capital deployment and minimal “hands-on” value creation as potentially best on a risk-adjusted basis, but notes a structural tension: these models can struggle to attract young, ambitious builders who want to be deeply operational rather than purely capital allocators

• Shail Vin, a searcher, shared his view on the seven questions that actually predict ETA deal quality:

  • He argues ETA diligence is bloated and misleading - LPs ignore ~90% of what searchers obsess over - and that true deal quality can be predicted by a small, pattern-based set of questions

  • The first two filters are demand and repeatability: is revenue proven vs. merely reported, and is there a repeatable engine vs. one-off, owner-driven work (the difference between a job and a business)

  • Customer acquisition and pricing power are core predictors: can the company win the next 100 customers without the owner, and is pricing power durable (i.e., customer conversations don’t instantly collapse the price)

  • Retention must “make sense”: not the churn rate, but the churn story - distinguishing healthy, voluntary churn from structural churn that degrades long-term economics

  • Organization and investor pattern-matching complete the screen: if growth requires rebuilding the whole org chart, it’s not a business but a turnaround; and the ultimate heuristic is whether a seasoned LP would say, “I’ve seen this movie before - and it ended well”

Deal / Launch Announcements

• 🇮🇹 Andrea Biancardi and Alessio Maria Matteocci launched Evoluzione Vulturnus, a sector-agnostic search fund (link)

• 🇪🇸 Quo Inversión, a search fund managed by Narcís Feliu de la Peña and Ariadna Cañellas, acquired HERMEX IBERICA, a manufacturer and distributor of school furniture (link)

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