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In early 2021, you launched Kaoba Capital Partners in Colombia. How did you discover the Search Fund model, and what motivated you to start one?
In 2018, while David Williamson Mejía and I were pursuing our MBAs at IESE Business School, we discovered the Search Fund model through a class taught by Peter Kelly – a fantastic course taught by a great professor with the support of amazing guests (including searchers and investors). Both of us wanted to embark on entrepreneurial ventures but weren’t sure of the path, and this class made us realize that we could become business owners through a different model than the traditional start-from-scratch approach. It was sort of our professional “love-at-first sight.”
After finishing our MBAs, David joined Credit Suisse in London in Investment Banking, and I joined the Global MBA program of ABInBev in Colombia. Despite this, we stayed in touch and continued exploring the possibility of launching a Search Fund. By early 2021, almost two years out of Business School, we decided it was time and began to engage with potential investors and eventually launch Kaoba Capital Partners.
Kaoba was backed by more than 20 local and international investors. How did the fundraising process go? Who were your investors?
The process took a bit longer than expected, as we kicked-off our fundraising the week after they ordered everyone to stay at home due to COVID. Though the economic impact of the pandemic was highly uncertain at that point, we remained hopeful; in our research, we saw how the cohort of companies bought during the recession of 2008 had seen incredible returns. So we persevered and took advantage of that time to engage with as many people from the community as possible to learn from their perspective to be able to hit the ground running. By Q3 of 2020, we finalized our cap table, raising 16 units of $40K each and attracting prominent investors like Ambit Partners and Spectra Investment, and individual investors like Alfonso Blhom, José Cabiedes, Simon Webster and Gustavo Fernández de Loyola. We structured our cap table to balance:
- Local and international investors.
- SF investors and new investors to the asset class.
Our main challenge was attracting local investors, as the model was unfamiliar to many. But, “if there is a will, there is a way,” and we ended up having the endorsement of great local investors.
Once the funds were raised, how did you go about looking for a company? What type of company attracted you, and how was the search process? How many companies did you contact and study in depth?
One advantage of searching in 2022/2023 was the ease in which we could spot the resilience of a business: we looked for companies that did not just “get by” the pandemic, but managed to grow – proof of a solid business model and a humbling reassurance that as new CEOs, we would have time to get the hang of things without the business falling into pieces.
Colombia is a relatively small market for pure SF criteria, so we had to cast our sourcing net wide. Fortunately, top-line financial data on companies is easily accessible, so we could quickly identify potential targets through filters like sales, margins, and growth. In parallel, we reviewed all SF invertor’s websites to see companies they had invested in and looked for companies in those industries here in Colombia. (By “we” I don’t just mean David and I. We were fortunate to attract great interns to help us in our sourcing, contacting, and analysis!)
To give you concrete figures, we contacted +1,800 companies, spoke directly with +800 business owners, signed more than 150 NDAs and sent +40LOIs. We set up personalized automated workflows with clear call-to-actions in Hubspot and reviewed our CRM pipeline diligently every week to guarantee a good deal flow.
What led you to decide to close the Kaoba venture?
Ultimately, the lack of cash; we used all the funds we raised. Though we had originally planned for 24 months, we managed to extend our runway to 32 months by saving on travel (covid accelerated the use of Zoom), leveraging our local investor’s access to research databases (so we didn’t have to purchase expensive tools), and reducing our salaries. However, after close to 3 years of search, we concluded that we had analyzed most companies that could have been a fit, so it was better to close the fund. The toughest part of taking this decision was feeling we had let down our investors, many of whom we developed a great working relationship and who supported us along the way.
Thanks to the experience you gained, you have decided to stay together and launch a new venture: DermaLumina. Can you tell us a bit more about the project?
One clear advantage of the SF model is that it allows you to deeply analyze various market niches. Upon closing Kaoba, we were clear on two things: we wanted to continue being entrepreneurs and creating value together, and we had gained significant know-how in the dermatology sector (we were close to acquiring an opportunity in this sector), which we wanted to leverage. Thus, DermaLumina was born.
In a society driven by viral trends that often assume a universal approach to skincare (e.g., K-beauty), we see a significant need for high-quality products specifically catered to Latino skin. DermaLumina aims to partner with leading dermatologists and experts to launch and acquire a diversified portfolio of brands addressing the unique needs of our diverse local communities. We want to establish a “brand house” focused on skincare innovation as a holding company.
We recently launched our first brand here in Colombia and bought the rights to commercialize an innovative product – oral sunscreen (a pill that complements sun protection).
If I understand correctly, you are combining a “VC” model with a “PE” model. In other words, you want to launch new brands as well as acquire some if they have interesting potential?
Exactly. We are willing to launch new products from scratch in our country and will also analyze potential small targets. We just closed a small round with interested investors, some of whom were investors in Kaoba and wanted to continue backing us. Our aim is to create a L’Oréal-like company for the Latin American market. The dermatological industry is booming and there is a great opportunity to focus on the consumer, launch attractive products, and generate economies of scale. We have been growing double digits month-to-month and expect to have at least 3 different brands operating simultaneously in the next 12 months.
Your experience as searchers ended poorly, but it has allowed you to combine the necessary qualities for this new venture: entrepreneurial initiative, management, and the art of buying. Would you recommend others to start a SF?
I would reframe your question; to quote Shakespeare, “There is nothing either good or bad but thinking makes it so.”
We loved our journey with the SF model and feel very fortunate to have had the experience to work with incredibly smart and caring investors. We had the opportunity to analyze a variety of super interesting business, understand what makes the “tick,” and meet fascinating business owners (we are still in contact with some of them – some are investors in DermaLumina!).
We launched an SF because we both wanted to embark on entrepreneurial ventures – and that’s exactly what we are doing. And while we would have loved the do it under the SF umbrella, our SF experience (and our investors) enabled us to live this next exciting chapter of our professional lives. We are extremely grateful to all those who believed in us and helped us be better professionals.
Regarding your follow-up question of recommending searching in Colombia, all I can say is times are always changing, and opportunities we had to pass on a couple of years ago (or that weren’t on our radar because of size) might be attractive today.
In conclusion, are there any lessons or advice you want to share with future searchers based on your experience?
One piece of advice I would give new searchers is to align with all their investors from the start and maintain very open communication throughout the process. Something that enabled us to launch DermaLumina and gain the support of some local investors who were already our partners was our transparency and over-communication.
My other piece of advice for new searchers is to not be afraid to commit; the process of dd is a process of falling in love with the deal you are pursuing. Yes, the deal won’t be perfect (no one is!). And yes, it’s the role of an investor is to have doubts and flag concerns about a potential transaction (that’s why they are great thought partners!). But when you take the decision to commit to a deal or to something in your life, your perspective changes – problems are just obstacles you will overcome, setbacks are just opportunities to grow. We didn’t buy the dermocosmetic laboratory I mentioned earlier, but we created our own!
