Backing an Expert: Funding a Searcher, ETA, or Operator
We just closed an investment to fund the acquisition of a company, partnering with a local operator. You could call it a search fund, ETA, fundless sponsor, operating partner—but I just call it backing an expert.
What amazed me is the original expectations of our new partner, and the other people that I met along the way. It seems that in a corner of the investment world that’s supposed to be entrepreneurial and bespoke, it already feels like Wall Street, cookie-cutter terms, “market pricing,” and spreadsheet assumptions everywhere. Which is exactly why we won the deal. We came in with a different mindset.
Our Playbook: The Same Since the Highridge Days
Our group has been doing these deals before “search fund” was trending. The principles haven’t changed:
1. Real incentive alignment – Operators put real skin in the game and get majorly rewarded when things work out.
2. No quick flips – We want to grow 30-year-old companies for another 30. Profits and distributions every year, reinvest along the way, not a quick champagne exit and goodbye.
3. Little to no debt – Ownership transitions are hard enough. Add a balance sheet full of debt and operating covenants, now you’re walking a tight rope.
4. People matter – Our 4D Wealth thesis still holds: good people, doing good things, in an innovative way, outperform over time.
When all that lines up around a “boring” SoCal business, we’re all in.
Learning the ETA Game
Back in April, I went to a searcher meetup in San Diego (thank you @HaileyHu for the invite). The group was diverse, recent MBAs, husband-and-wife teams, ex-corporate types escaping the big-company grind.
The common playbook? Personally guaranteed SBA debt, some investor capital, and a small slice of carry. It’s tidy on paper, good for LPs, nerve-wracking for operators.
If I were “Dan the Searcher,” I’d be thinking:
· I’m smart, I’ve can use Chat GPT, I can totally run a small business.
· The seller’s success was in a different era. They have become complacent
· Time to modernize with AI, new CRM, and “efficiency.”
· The business will 10x in three years. Easy money.
Then reality hits: payroll, vendor disputes, turnover, equipment breaking, customers not paying. The case study didn’t cover what to do when the forklift dies mid-shipment. That’s why the structure is tilted in favor of investors, they’ve seen this movie before and know the risk.
Our Model: Partner with Operators, Not “Searchers”
We look for experts, not just “smart” and motivated ex ibankers, or consultants. Fine people, just doubling up resources, without adding value.
· We already bring financial strategy to the table.
· What we need are partners who can run a business, lead teams, build relationships, and deliver for customers.
· We avoid lopsided deals where the operator signs personal guarantees while we stay comfy in our limited liability tower. That kind of asymmetry kills creativity and long-term thinking. Either people play not to lose, or they don’t understand how to properly underwrite risk.
Instead, our capital comes in as flexible equity. It’s more expensive than debt, but infinitely more strategic. It gives breathing room, not choke points. The kicker? When things go right, we want our partners to own more than we do. The whole point is to create wealth with them, not extract it from them.
Starts with the Deal
A great deal funds itself. It took me years to fully internalize that. There’s plenty of capital out there, it just doesn’t want to be wasted. We don’t grind sellers down. In fact, our best deals happen when the seller cares who takes over. They want their people and legacy protected, not rolled into a faceless conglomerate. We’re hitting the bid, but doing it with discipline and purpose. We are not the highest, but we bring other things to the table.
Recent Close
The Operator
· 15+ years in an adjacent industry.
· Sold his own business. Too young to retire, too seasoned to start over from scratch.
· Learner, builder, high-integrity guy.
· Met him at that April meetup; deal was live by midsummer.
· We split his search and diligence costs.
The Company
· Founded in the 1980s.
· Niche contracting business with sticky clients and barriers to entry.
· AI can enhance, not replace, the service.
· Loyal, experienced team.
The Seller
· Wanted to cash out and see the business thrive.
· Provided some financing and offered a long transition.
· Cares deeply about his team and customers.
We matched the operator’s capital with our equity, same terms for everyone’s money. Once everyone’s capital comes back with friends, he’ll own the majority of the business.
We also gave the company a buyout option, if we can hit our return hurdle within five years, they can repurchase our stake through an ESOP. Employees get ownership, the operator gets flexibility, and we get paid. Everybody wins.
Searching for Each Other
There’s a lot of talk about “entrepreneurship through acquisition.” Which I think is great, but having run an operating business for a few years I know it takes a different skill set than mine to be successful.
What I’m looking for are operators who:
· Know their craft, industry, and people.
· Want real ownership, and flexible funding terms.
· Value outside partners.
· Care about customers as much as cash flow.
If that’s you, or someone you know in Southern California, looking to buy a company let me know. I’ll bring the spreadsheets. You bring the expertise.