March 6, 2018

The timing isn’t right, they said. Get a normal job and climb the ladder. Never go into business with family, it’s a recipe for disaster. There were a thousand reasons not to start Pursuant Capital. If we had waited until the timing was perfect and the stars aligned, we’d certainly still be waiting.

But we took the first step. And so we are writing this letter to tell you about the humble progress we’ve made so far, not just to describe our grand plans.

The Opportunity

We launched Pursuant Capital on January 1, 2018 to capitalize on a unique opportunity: in the U.S., thousands of established, profitable businesses are owned by baby boomers that need to retire and liquidate. But most of these owners don’t have a transition plan. That’s where we come in.

Pursuant Capital is Tampa’s only privately financed search fund in pursuit of a profitable small business to buy and operate for the long term. It sounds fancy and complicated, but it’s not. We’re simply searching for a business with the following criteria to buy and run in a professional manner.

  1. Located in the Tampa Bay area (ideally Pinellas or Hillsborough counties)

  2. Consistent revenues ($2-20M) and a healthy bottom line ($1-2M of profit)

  3. Industries that aren’t sensitive to economic cycles, tech advancements or regulatory risks

A Search What?

Thirty years ago, a professor at Stanford invented the “Search Fund where motivated, highly trained entrepreneurs, backed by experienced advisors and investors, acquire an established business and operate and grow that business day-to-day. Sounds too good to be true, but the proof is in the pudding: a 2016 Stanford analysis of 258 qualifying search funds found the aggregate pre-tax internal rate of return to be 36.7%, and the aggregate pre-tax return on invested capital to be 8.4x.

Not New; Just New to Tampa

People ask us: “how are you any different than private equity?” The answer is that private equity keeps the seller and management team in place after purchasing the business. In our case, after purchasing the business, we will operate it on a day-to-day basis as co-CEOs and incrementally improve the business over the long run.

Others ask us why we have a geographical constraint. If you are reading this, you are probably a resident of the Tampa Bay area. We love it here. Our families, friends and most of our professional network are here. The weather is great, there aren’t state income taxes, and Tampa is growing by leaps and bounds. We could go on and on. But the simple fact is that we just don’t want to leave. So we’ve drawn a 90-mile radius around Tampa International Airport, and we’re only targeting those businesses inside of it!

Why Us?

Sam’s background as a CPA, M&A lawyer and investment banker gives us the ability to do a deal and manage the quantitative side of a business. Joey’s operational and entrepreneurial track record will come in handy by providing much needed sales, marketing and operational expertise. There’s no doubt that our skill sets and personalities are yin and yang, but in the context of our business strategy, we are very complimentary.

And we wouldn’t be here without our “grey hairs”: our team of advisors that are seasoned business operators who have generously mentored us through the early stages of our venture.

What We Are Finding

Since launching on January 1, we’ve searched far and wide to build a robust deal-sourcing pipeline. Most of our time has been spent “pounding the pavement” with meet-ups, conference calls, quick coffees, long lunches, and countless other forms of networking with sellers and M&A intermediaries.

Two months in and we are finding our sweet spot: “off the radar” businesses that sell B2B, are highly unglamorous, that offer services (or manufacture products) that sell just as well in both good times and bad. And they are highly profitable. That’s a broad description, but suffice it to say in Tampa there’s a huge population of these businesses that are doing very well. Although the majority of such owners are from an older generation, not all of them are.

This letter is getting long in the tooth, so we’ll wrap it up by asking you to please check out our website: PursuantCapital.com. We’re proud of it.

You all—our friends, colleagues, investors and advisors—are our lifeline. Stay in touch. If you come across a great article, send it to us. If you learn of an interesting industry, let us know. And if you know of any business owners who may need an exit plan, we’d appreciate an introduction.

This is just our first step in what we hope is a long journey. Thanks for reading. We’ll be sure to keep you posted on our progress!

Cheers,

Joey & Sam

_______________________________________

Ref:

  1. https://static1.squarespace.com/static/575ed919c6fc0826ea119031/t/5996045ff9a61e19fde490f6/1503003745964/Chicago+Booth-Evolution+of+ETA.pdf
  2. https://www.gsb.stanford.edu/faculty-research/centers-initiatives/ces/research/search-funds
  3. https://www.gsb.stanford.edu/faculty-research/case-studies/2016-search-fund-study-selected-observations
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