The ETA Asset Class is Maturing, But Faces Size Constraints

The ETA search has grown into a more professional asset class over the years, but its reliance on mentorship makes it hard to scale to the size many institutional investors require, says Susan Pohlmeyer, co-founder and partner of Futaleufu Partners, as well as a former investor at the Stanford Management Company.  In a conversation with Search Party, Pohlmeyer explains the fundamentals of the entrepreneurship-through-acquisition asset class that also limit its ability to grow. "The three legs of the stool that make the search model work are: a great industry and company, a talented entrepreneur who can be a great CEO, and investor-mentors. If you take away the mentorship aspect, you don't have a stable stool" she says. Among the key takeaways of this Search Party episode: • The ETA asset class has matured significantly, with dedicated accounting, legal, and lending practices now existing specifically for search funds. But space is still low in institutional capital, with most investors still being high-net-worth individuals and family offices. • Futaleufu Partners evaluates searchers primarily on coachability and their ability to connect with and manage people, not pedigree or prior CEO experience. • Despite more capital flowing into the search world, purchase prices for lower middle market companies have remained relatively stable, because the core inefficiency is structural: illiquid markets with founders nearing retirement, not a lack of buyers. • AI is a significant opportunity for most lower middle market businesses, and good managers will have an edge as technology levels the playing field. • Roll-up and PE-style M&A strategies are appearing more frequently in ETA, but Pohlmeyer believes the core investment should be able to stand on its own without M&A. Access a full transcript and searchable content archive on the Search Party Substack. Lead Sponsor: NCL Partners https://www.nclpartners.com/ Sponsors: Boulay https://boulaygroup.com/services/search-funds/ Kilpatrick  Townsend and Stockton LLP https://ktslaw.com/ Oberle Risk Strategies  https://oberle-risk.com/landing-page/search-party/ #searchparty #eta #privateequity #M&A