Friday, July 12, 2024
Friday, July 12, 2024

Jake Nicholson, Founder, SMEVentures

I found myself thriving in the entrepreneurial nature of the job, enjoying the autonomy and the fact that my success depended on my own efforts.

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1/ Can you share a bit about your background and what inspired you to enter the world of SFs?

In 2008, I was working nonstop selling Manhattan real estate during the Global Financial Crisis, facing daily rejections and long hours. Despite the hardships, I found myself thriving in the entrepreneurial nature of the job, enjoying the autonomy and the fact that my success depended on my own efforts. However, I wanted to pursue something bigger and more entrepreneurial. In 2011, I decided to enroll at INSEAD for an MBA, immersing myself in entrepreneurial electives and seeking a global business perspective.

During my time at INSEAD, I first heard about SFs at an Entrepreneurship Club event. Initially skeptical about buying a company with no money of my own, I became intrigued after learning more about this model of ETA. I realized that SFs could provide the thrill and rewards of entrepreneurship while mitigating many risks compared to a traditional startup. Through extensive research and interviews with experienced searchers, I saw SFs as a good hybrid between startup entrepreneurship and a typical MBA corporate job.

I loved the idea of owning the entire process, from raising capital to running the acquired business, which would already have product-market fit and cash flows. Despite the challenge of being the first INSEAD student to launch a SF and the difficulties of penetrating the American market with a European MBA, I was determined. In 2012, I made the decision to launch my own SF, embracing the opportunity to make my mark and chart my path with less risk than a traditional startup. This journey, although roundabout, provided a way to achieve my entrepreneurial goals and create a meaningful impact.

When I speak with prospective searchers today, some follow the same logic, and others have their own. Some see SFs as an efficient path to the CEO seat. Others see the IRR figures in the Stanford SF study, and they want a piece. While it’s tempting to say there are no wrong answers here, some are more likely to spell success than others.

2/ A few years ago, you decided to launch SMEVentures, the first ETA accelerator in Australia. What are the core values and mission of SMEVentures?

At SMEVentures, our mission is to empower the growth and sustainability of SMEs in the APAC region. We are dedicated to bridging the gap between retiring business owners and the next generation of entrepreneurial talent. Our core values center around legacy preservation, entrepreneurial empowerment, innovation with integrity, and success through stewardship.

Legacy preservation is at the heart of what we do. We leverage our deep understanding of the SME landscape to ensure that the ethos, culture, and values of these businesses not only survive but flourish under new leadership. We honor the original vision of each business while introducing innovative strategies for future growth and success.

We also focus on entrepreneurial empowerment. We provide mid-career explorers with the tools, resources, and guidance they need to succeed. Our support system is designed to help them through the challenges of business acquisition and leadership.

Innovation with integrity is another key value for us. While we advocate for growth and new ideas, we do so with unwavering respect for the integrity and heritage of each business we engage with. This balance ensures that our entrepreneurial endeavors are both progressive and respectful of the past.

Lastly, success through stewardship is a fundamental principle. As stewards of business legacies and growth, we emphasize responsible leadership and the potential for long-term success. We aim to create a foundation that ensures not only the success of the entrepreneurs we partner with but also the success of the broader project of transferring great small businesses to talented, hungry entrepreneurs.

Through our unique SF model, we connect retiring owners with aspiring entrepreneurs, safeguarding legacies and fostering new growth. Our approach is about more than investments; it’s about legacy and community. By building a robust ecosystem of searchers and investors within Australia and New Zealand, and now increasingly attracting foreign capital, we are dedicated to building the future of the APAC SME landscape.

3/ The ETA journey is quite lonely. How important is it for entrepreneurs to have a whole team of professionals backing their search? How do you help entrepreneurs in their journey?

SMEVentures is set up to be a true partner to the entrepreneur from beginning to end. When we decide to work together with a searcher, we assist in raising the search capital needed to find an acquisition opportunity. We then collaborate closely during the search process. Once an acquisition opportunity is identified, we help raise the acquisition capital. Post-acquisition, we continue our support by sitting on the board as the only other ordinary shareholder, aligning our interests entirely with the searcher. Our equity vesting schedules are the same as the searcher’s, ensuring we are pointing the ship in the same direction.

We assist searchers in several key ways. Firstly, we provide access to a robust network of capital, both equity and debt, from investors who have previously enjoyed working with us and are eager to invest further. Searchers can leverage this network for their funding needs.

Over the past few years, we have invested significantly in building one of Australia’s strongest deal-sourcing engines for businesses with an EBITDA of $1M to $5M. Our comprehensive database includes virtually every business we would care about in our target markets of Australia and New Zealand. We have developed a tech-enabled sourcing mechanism that is best in class and continuously improving with the integration of cutting-edge technology and AI, making our sourcing efforts even more efficient.

From day one, we work very closely with the searcher. I bring extensive experience in the SF world, having been involved in various capacities since 2011-2012 – from academic researcher to searcher, investor, accelerator, and adjunct professor at INSEAD. This diverse experience enriches my daily interactions with the searchers we partner with. Combining this experience with our access to capital, data, technology, and a strong network of professionals, we make the search process much more efficient and less lonely for the entrepreneur. Our comprehensive support ensures that searchers have all the resources they need to succeed in their entrepreneurial journey.

4/ Thanks to SMEVentures, three companies have been acquired. Can you describe these recent success stories and how you helped them attract foreign capital?

We’ve had the pleasure of partnering with 4 searchers so far. Together, 3 of them have acquired 4 businesses, and our fourth searcher is about to acquire two more, bringing the total to 6 acquisitions. We are currently launching our fifth searcher. So far, we’ve maintained a 100% acquisition success rate, which surpasses the 66% success rate cited in the Stanford study. Our average EBITDA multiple for acquisitions is about half of what’s quoted in the Stanford study, and our time to acquisition is about a third faster. This indicates that our approach is effective.

The businesses we’ve acquired fall within the typical range for SF acquisitions in terms of size and business characteristics. For example, Rob Gaunt acquired ACE Training and later its competitor, MultiSkills Training. Both companies provide training services in the civil construction industry and trucking, catering to both individuals and corporates with recurring training needs. Ryan Bernsmann bought Grima Recycling, a leading provider of recycling services in New South Wales, primarily focusing on cardboard. Both these businesses had been established for several decades before acquisition. Steve Orell acquired Emerge IT in Darwin, a managed IT services provider serving unique customers in the Northern Territory, including Aboriginal health organizations and enterprises in remote locations. Jason Hew is about to finalize an acquisition as well, which I hope to discuss in more detail soon. As mentioned, one of these searchers has already made a bolt-on acquisition, and another is likely to follow, adding strategic value and synergy to their portfolios. In a few months, we might have seven acquisitions across four searchers, with another searcher underway.

Regarding how we help them attract foreign capital, from the beginning, my priority was to build a strong domestic investor base. I didn’t immediately seek foreign capital. Instead, I spent considerable time networking in Australia, meeting potential investors to get them interested in domestic SF acquisitions. I believed it was crucial to create a robust ecosystem of both searchers and investors within Australia and New Zealand. I focused on building this network of investors before we even had searchers or deals. This groundwork paid off because when we did have searchers and deals, the investors were ready to act. This created a virtuous cycle: as we completed more deals and launched more searchers, our existing investors spread the word, and our domestic investor base grew. As we proved the model’s success in Australia and New Zealand, foreign investors began to take notice and gain confidence in these markets. Initially, we had few foreign investors, but now there is significant interest from abroad, with many foreign investors eager to enter the Australian market due to its demonstrated potential.

5/ Australia and New Zealand’s SF activity is quite recent. What opportunities do you see emerging for SFs and SMEs in the next three to five years? Furthermore, we are seeing other countries in the APAC region starting to attract searchers, such as Japan, China, Vietnam, Singapore, and Korea. Could you share your vision regarding this huge potential market, and are you planning to expand your scope to these countries?

The opportunity for SFs in the broader Asia-Pacific region, including Australia and New Zealand, is immense from a demographic perspective. There’s a significant generational transfer happening, and many legacy SMEs might not successfully pass the torch, creating a unique opportunity for aspiring entrepreneurs to step in and take the reins of these established businesses.

When we started in Australia, there was only one searcher, Alex Simmons, who had raised a search fund and was actively searching. This was the trickle, and now there’s a growing number of SFs in Australia and New Zealand, which is very promising. We’ve taken a deliberate approach, working with one or two SFs initially. As the market matures and our processes prove successful, we see the potential to increase our activity over the next few years.

In the rest of Asia-Pacific, countries like China, Vietnam, Singapore, Malaysia, Indonesia, India and Korea are just beginning to see SF activity. Japan has a couple of institutional investors and a few successful SF acquisitions, but like ANZ, Japan is still in the introductory stage. We are currently evaluating opportunities in each of these countries while focusing on Australia and New Zealand. There isn’t yet a critical mass in these other markets, but we’re frequently in conversations with people considering raising or investing in SFs. These initial discussions are the seeds that will hopefully grow into a robust SF ecosystem across Asia-Pacific, and SMEVentures is well-positioned to support this growth over the next couple of decades.

I am passionate about what we do and find the opportunities very exciting. There’s no one else in this hemisphere doing what we do in a searcher-focused and entrepreneur-focused way. This allows us to continually embrace the entrepreneurial journey while investing in building systems, technology, databases, processes, and networks that individual searchers wouldn’t be able to develop on their own. Our goal is to create a platform that maximizes the probability of success for every searcher we partner with. This long-term vision is different from that of a solo searcher, who aims to find and buy one company to run for the next decade. We are dedicated to building a foundation that ensures the success of both the entrepreneurs we partner with and the broader project of transferring great small businesses to talented, hungry entrepreneurs. This vision is invigorating, and while we’ve taken a measured approach so far, we’re excited about the opportunities and the evolution of the EtA ecosystem in the Asia-Pacific region in the coming years.

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