Alessio Baraldi and Dmitri Ivanov, two Brooklyn, N.Y.-based entrepreneurs and co-presidents in the private investment fund Albaron Growth Partners, have a rather unusual goal: to acquire a single company valued between $5 and 50 million, which they will then operate as principals.
Baraldi and Ivanov founded Albaron with a simple premise: a growing number of small-company owners are looking to retire or step back from day-to-day operations but do not have a natural successor nor want to sell to a competitor. The equity company would take over and grow the business at a manageable pace, building upon its legacy.
The pair’s approach represents an obscure corner of the small cap investment world called a “search fund.”
Search Fund Defined
The Stanford Graduate School of Business describes a search fund as an “investment vehicle, conceived in 1984, through which investors financially support an entrepreneur’s efforts to locate, acquire, manage, and grow a privately held company.”
The process involves two stages:
- A small group of investors back operating managers — Baraldi and Ivanov in Albaron’s case — to search for a target company to acquire;
- The managers then take on operational roles in the acquired company — CEO, president and the like — while investors assume roles as board members and advisors.
The search fund model became popular about 25 years ago as a way to enable recent business school graduates with a way to go into the real world economy as entrepreneurs to help established business owners transition from day-to-day operations while keeping their legacy alive.
“The search fund industry is very small compared to the need,” Ivanov told Small Business Trends. “Even though more than 100 search funds have launched in last 25 years, with Baby Boomers reaching retirement age, there is a need for more. At this point, it’s a drop in the ocean but is an asset class that is starting to emerge due to the generational shift.”
How the Process Works
Albaron offers the business owner a liquidity event as well as someone to personally take care of the company’s future. Unlike traditional private equity funds run by hands-off investors building diversified portfolios, Albaron intends to buy one company that its co-presidents will join as full-time executives.
“What we offer is to buy out the business owner and take over running the business on his behalf, building on his legacy,” Baraldi said in a telephone interview with Small Business Trends. “Dmitri and I raise money from investors who help us go out and find a company that has a lot of potential. Our involvement is as executives and theirs is as board members and advisors. We then focus on growing the company long-term.”
According to Baraldi, older business owners begin to think less about investing and growing the company and more about taking money out of it, paying themselves a dividend. As a result, business growth stalls. “We put the company on a path toward healthy development for years ahead,” he said.
Unlike typical venture capital firms, search fund investors are not interested in startups, many of which represent the tech sector, but established businesses that have been around for as many as 20 or 30 years.
“A lot of companies represent industries that are not as high-growth as tech but that can be just as interesting and remunerable,” Baraldi said. “We are looking at more established industries, such as healthcare, logistics, or B2B services.”
Pair Brings Decades-long Experience to the Table
Baraldi and Ivanov bring to the table decades of experience as entrepreneurs, business executives and investors. Baraldi spent eight years as a venture capital and private equity professional at Warburg Pincus, Blackstone and Morgan Stanley.
He also founded two other companies: Clearabee, a local logistics provider that reached $20 million of revenue in four years, and Evermore Nutrition, a manufacturer of personalized wholefood supplements.
Ivanov brings over fifteen years of experience in leadership roles in operations, business development, and management consulting. He most recently managed fourteen upscale hotels of Hersha Group, a family-owned hospitality company.
All of Albaron’s backers, who include Kevin Taweel, founder and CEO of Asurion, are former or current CEOs and self-made entrepreneurs. They are actively involved in the strategic direction and growth initiatives of the companies they invest in. Collectively, they have executed more than 500 small and mid-sized acquisitions and had more than $2 billion in assets.
“We’re in this for the long term,” Baraldi said. “Our flexible structure allows the seller full control on timing, deal structure, tax planning, and his involvement after the sale.”
Image: Albaron Growth Partners