What is Entrepreneurship Through Acquisition?

We invest in self-funded "searchers" who have found and negotiated to acquire profitable, proven small businesses.  

The "searchers" acquiring small businesses that we invest in have meaningful skin in the game: 

  • While searching for an acquisition target, the searcher has no external funding, living on savings or working by day and searching at night
  • Acquisitions are primarily funded by an SBA loan, which requires a personal guarantee by the searcher
  • Searchers typically invest personally meaningful amounts of their own capital in the acquisition

See an Example ETA Investment

Example capital stack for an Entrepreneurship Through Acquisition purchase of a small business: 

Historical Investor Returns Backed by Academic Research

Stanford University has studied traditional search fund investing for over a decade, and high IRRs to investors have persisted. Other studies suggest that self-funded search has a similar investor return profile.

Study 1: Search Investment Group (2023)
IRR for Self Funded Search Investing
Median IRR: 25% - 29.9%

Study 2: Stanford University (2024)
IRR for Traditional Search Investing
Average IRR: 35.1%

High IRRs Are Made Possible by Reasonable Valuations

Paying 3-5x Earnings for Businesses (ETA Investing) vs. the ~30x Earnings the S&P 500 Trades At

Typical entry multiple for investors are 1.5- 2.5x after taking step-up into account, which is highly attractive.

(An acquisition at 5x earnings and offering 2x step up gives investors an effective entry multiple of 2.5x)

Debt Pay Down Drives IRR
Even if the Acquired Business Does Not Grow Dramatically

The best self-funded search deals create strong IRR even if they simply pay down debt without growing.

We model revenue growing only with inflation in our base case financial model evaluations.

Typical Investor Economics at the Individual Deal Level

8% - 12% Preferred Return

The investments we make in acquisitions earn a preferred return (annual, non-compounding) typically of 8% - 12% on invested capital.

Prioritized Return of Capital

Investors’ initial capital plus their preferred return must be paid back before any distributions are made to other shareholders (other than for taxes).

Investors continue to receive pro-rata distributions after their initial investment is returned. Salary increases to the Searcher/CEO are capped to align incentives.  

Step Up

Investors receive equity in the acquired business with a “step up” of typically 1.5x - 2.5x.

For example, if a business was acquired for $1.0m and Entrepreneurial Capital invested $50k with a 2x step up, we own 10% of the equity instead of 5%.

Why Now? 2.3m businesses are owned by Baby Boomers.
Most will need new ownership in the coming years.

Comprehensive Due Diligence designed to stress-test the case for why not to invest

We invest in businesses that survive this stress testing.

Searcher Diligence

Utilizing background checks, reference checks, virtual and/or in-person meetings, assessment of searcher's experience, character, tenacity, humility, and skills. This is one of the most important parts of the process: it is not possible to do a good deal with a bad person.

Company & Industry Diligence

Financial modeling (especially of investment IRR in no-growth or low-growth scenarios and leverage ratio stress testing), analysis of historical financials, customer and supplier concentration, employee relationships and agreements. Industry entrance/exit dynamics, competition, growth, profitability, etc.

Deal Terms Diligence

Review of deal terms against the standard for self-funded search investing. Legal review of investor docs. Negotiating put options to create agency on the timing of liquidity for our investment. Assessment of appropriate check size if an investment is warranted.

We evaluate each opportunity against the hundreds of deals we see annually

The above list is provided for illustrative purposes. Diligence varies based on what is appropriate for a given deal.

Grant Hensel

Managing Partner

Location: Chicago, IL 
Email: grant@entrepreneurialcapital.com
LinkedIn: linkedin.com/in/granthensel

Grant and his wife Julia of seven years live in Chicago, IL. They met while students at Wheaton College.

Serial Entrepreneur

Founder & Chairman of Nonprofit Megaphone, a digital marketing agency that has grown to now serving ~800 clients.

Founder of 9 other businesses: 2 were acquired, 2 fizzled out, 5 became smoking craters.

Self-Funded Search Experience

Acquired Lexigate, an SEO agency with 20 team members serving personal injury attorneys. 40%+ cash on cash return to date.

Became a living statistic that ETA success rates are much higher than startup success rates.

Investor in Self-Funded Searchers

10+ personal investments.

MBA with Honors, University of Chicago Booth School of Business

Selected Advisors

Analysis

Bill Best, CPA, CA

  • 40+ years of experience in finance, operational leadership, entrepreneurial coaching and investing
  • Deep corporate governance and board experience

Deal Flow

Michael Trachtenberg

  • Founder of Main Street Capital Network, providing significant self-funded search deal flow
  • Creator of the industry standard self-funded search term sheet

Value Creation

Jeremy Schwach

  • CEO of Bluetree, scaled to hundreds of employees, exited in 2019 to Tegria
  • Founded Hummingbird, scaled to 200+ team members in 2 years

Frequently Asked Questions

Who can Invest?
What is the Minimum Amount I can Invest?
What is the Estimated Time Horizon for This Investment?

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