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Itaca has been one of the most active European investors in the space, backing around 30 SFs and 20 acquisitions, mainly in Spain and France. How would you summarize your experience and the key takeaways from these five years of activity?
Our balance is extremely positive, we had a vision to become end-to-end partners in the respective journeys of our portfolio entrepreneurs and have been able to make outstanding risk-adjusted returns for our investors while experiencing an amazing learning experience.
The main takeaway is that the Search Fund model works and that there is a clear role for us to play as active investors who have chosen to work in this space with a highly dedicated approach, building a concentration portfolio of companies in which we are very active and can help develop, especially with regards to buy-in transition management and exit strategies.
For me personally, it has been a process of tremendous learning and personal growth with great moments of joy and a very happy lifestyle combined with periods of unprecedented pressure. In these five years, I bought my first company in self-funded mode, we (mostly) paid out the investors of our first fund and launched a second fund with our own management company. When I reflect on this, I feel thankful to my partners, our team and my family who made it all possible and at the same time an urge to inspire and support other entrepreneurs who aim to transform their careers and lifestyles with the EtA model.
The wave of great exits we’ve seen in Europe over the past 18 months is excellent news for the ecosystem. Do you think Europe can reach the impressive 35% IRR that has characterized the U.S. market? How do you expect these successful exits to help you convince new LPs in an increasingly competitive fundraising environment?
Liquidity is a very important part of the PE model, sometimes overlooked, and probably the main challenge we saw in the SF investment thesis from the very beginning.
Our two exits in 2025 delivered an average IRR of 37% and have certainly contributed to virtually all our Fund 1 investors to reinvest in Fund 2, not only cashing in the proceeds but, in most cases, doubling the amounts committed to Fund 1.
When it comes to generating liquidity around search-fund-acquired companies, we set our focus on choosing companies whose size, industry and value-creation plan point towards a clear option of liquidity at some point in time without putting extra pressure on the CEO or the board in any way, and we make our search-phase investment decisions strongly influenced by this thinking, preferring standard SF model propositions from prospective searchers who share this thinking and can demonstrate their commitment to it.
We trust that doing this on a systematic basis, while continuing to adhere to the classic search fund model criteria, will yield a combination of outcomes: some with early liquidity events and high IRRs, and others with longer holding periods but also higher MOIC multiples. When we started with Fund 1, we aimed to return most of the fund by year 5 and reach a portfolio MOIC of 3x by year 8; and so far the actual metrics of Fund 1 are very much in line, with a DPI of 70% in year 5, and promising outlook for our other 9 companies, which we expect will average our 3x target.
Our portfolio is not only providing proof that the Search Fund model works but also showing our investors our commitment with this approach, with a high level of discipline that sometimes make us pass up on deals that look great overall but do not fit this agenda.
You’re now doubling your previous capacity with Itaca SF Partners II. What are the objectives of this new vehicle, and how does your investment strategy evolve compared to the first fund?
We are raising a €20m fund to invest in 20 companies. The objectives are quite similar: to build a sufficiently diversified portfolio of high-conviction investments where we can add value and drive towards liquidity windows.
The increased size, which results from a continuous process of feedback and reflection within the team, is mostly linked to (i) our preference for larger companies (€2-3m EBITDA range), which we see as more robust and more liquid and (ii) our need to concentrate tickets in a limited number of companies to maintain the level of dedication to our portfolio companies that we have committed to our entrepreneurs and investors.
A very specific and distinctive trait of this fund is our initial view, that dates back to my first meeting with Paz Ambrosy back in 2019, is that this asset class will need to develop liquidity solutions to manage the company life-cycle independently of the time-horizons of the investors, and we plan to play an active role in catalyzing these solutions. As a first step, this fund includes several complementary instruments for follow-on investments in the context of build-ups (€10m) and we are developing other co-investment instruments that help us play a distinct role in years 4 to 6 in a few of our companies.
You’ve emphasized a hands-on approach, often taking board seats in portfolio companies. How does Itaca support searchers during the search phase, and what role do you play in governance and value creation once an acquisition is completed?
During the search phase, we try to be “respectful and available”. We are very conscious that this is an entrepreneur-driven phase in which he/she is taking most of the risk (career risk) and it is him/her who has to call the shots on which deals to focus on and which trade-offs to make; but if they want opinions and connections, they will get a ton of them.
We build our partnership with searchers from day 1 of the selection process, sharing our own entrepreneurial stories – successes and failures – and promoting frank conversations on the things that matter to us humans beyond our CVs. Our partner Michel Welters – a former MBO CEO and now a certified CEO coach – has championed this idea within the team and has made us all use our (in)famous personality tests as a tool to put our focus on people strengths, team complementarity and shared values.
Upon acquisition, our natural role in shareholder engagement is through the Board of Directors. A strong board will keep everyone informed and empowered to make decisions, support the CEO in the transition and dive-in when the circumstances call for action.
Our high involvement in boards has a dual focus on fulfilling our role of control and information to all shareholders of the company, while at the same time supporting a first-time CEO in a challenging, lonely journey.
In our view, the Search Fund ecosystem often overlooks the formal a very core role of the board as an element of control, which is very well developed and established in the history and literature of business management and needs no reinvention but rather constant reminders to all of us to continue to enforce control and act in accordance with pre-established governance procedures with a practical mindset in a small SME context, not to reinventing the wheel.
When it comes to support, we find the investor ecosystem very collaborative, experienced and well intentioned and make our best efforts to deliver on an ever-hard promise of time dedication that is necessary first to learn about the business trade-offs, the context of the team and the market dynamics so that later we can truly support the growth agenda of the company.
In our team, the support role goes beyond the person acting as a Board Member representative and truly integrates the shared knowledge and networks of a team of 5 that covers strategic analysis, operational management and transactions expertise in a long list of industries. For example, in a company where I am the Board Member, the team is receiving additional support from Michel in defining team roles and recruitment, Paz is helping with exit options and Jorge and Gil are supporting with the tracking of metrics and analysis of add-on opportunities.
Some experts have raised concerns about “too much capital chasing too few deals,” and certain countries appear to be “saturated” with new searchers. How do you assess the maturity of the SF ecosystem in continental Europe? What impact do you foresee from this trend on deal quality, pricing, and long-term returns?
We do not think there is an excess of capital. The model is proving to work in continental Europe, despite smaller markets and higher risk aversion of investors compared to the US.
What we see, however, is Europe quickly catching up with the US in terms of maturity, sophistication and number of both entrepreneurs and investors. So far we do not see a decrease in the average quality of searchers and deals, but we do see an increase in the variance of all the metrics we care about: multiples, deal risk, alignment, etc. This calls for taking specific action, either super-diversification or super-selection. We have chosen the latter.
Our view is that, in the next 5 years new capital flows into the space, returns will stay high on average for investors with a high dedication and experience, and may be more unpredictable for investors with a more intermittent involvement and/or with less strict decision-making criteria. In this context, part of our value proposition is co-investments, which provide our less-involved LPs with the opportunity to participate in our proprietary and equity-gap deal flow and rely on our extensive time dedication.
From your experience, what have been the most consistent success factors among your portfolio companies? What personal attributes or capabilities do you find most predictive of success for a search fund entrepreneur?
This is a very difficult question to answer without falling into the trap of ex-post bragging because the sample is small and a large share of our success is due to our constant feeling of insecurity that drives us to drill down every deal.
From our very humble perspective, we are strong advocates of companies with recurrent revenue, disciplined entry terms and permissive market contexts (fragmented, growing markets). This is easier said than done in practice when you have to say “no” to a deal of a searcher with whom we have been working for two years but here, our own governance structure separating the role of the search-mentor versus the rest of the team who decide on the Investment Committee is proving to work very well.
A less obvious, more juicy takeaway perhaps, is that our best deals consist of simple businesses that searchers and investors understand from day one, and that are run by managers that are both very hungry and honest. I think many of us investors align on this topic too, but again the actual adherence to this requires harsh control of FOMO dynamics, ability to spend time with searchers and deep dive into their ambitions and dreams and stay cautious about the fact that we are generalist investors, experts on the SME transition process, but not necessarily experts on certain complex industries always in fashion (i.e. software) for which higher prices are sometimes being paid without a true insight on how to navigate its industry specifics and enhance the returns.
Finally, your fund’s mandate includes openness to secondary opportunities. How do you see the secondary market for SF stakes developing in Europe? Do you expect to see continuation funds or vehicles dedicated exclusively to secondaries emerging in the near future?
When we started Itaca, we had a view that secondaries – very present in Private Equity an now also start-ups – would have a very important role in the search fund asset class and now we are starting to see the first signs of confirmation. The fundamentals are very clear: Search funds build on relatively illiquid companies and timing is probably one of the main uncertainties of the SF model and hence secondaries are a very natural tool for exit.
For clarity, and given the recent misuse of secondary instruments and proliferation of continuation funds, our intent with the Secondaries strategy is not to solve a liquidity problem of SF investors but instead take ownership of the fact that the role of the SF ecosystem with respect to founder-owned companies is to initiate a journey of professionalization and growth that does not need to have an end, regardless of the searcher and of the investors.
Here we are already seeing, and will continue to see more and more often, companies whose evolution deviates from the initial roadmap and require additional capital investments for build-up or even turnarounds, and this naturally will open questions to each of us shareholders on whether to double down, not participate but remain, or simply seek an early exit solution. We think this is a natural evolution and that institutional funds have a greater role to play vis-à-vis other investor profiles. Here some funds are leaning towards LTH models, and we –who always have liquidity discipline in the back of our minds- tend to see ourselves leaning more towards the traditional PE format, potentially increasing our stake in the growth phase of a few companies before passing the ownership baton to mid-size PE fund or an ultimate industrial buyer.
