EP7 · Economy · first published 2020-03-06
Search Funds and ETA | Gautam Basu | Neuvottelija 7
Gautam Basu introduces Sami Miettinen to Entrepreneurship Through Acquisition, the model where you become an entrepreneur by buying an established company rather than founding a new one. The episode covers the three routes into the model, the True North Search accelerator concept, and the demographics behind it: 30 per cent of Finnish entrepreneurs are 55 or over and up to 40 000 companies are looking for a new owner. Basu opens up the search criteria, the funnel from 300-500 targets down to one acquisition, and why the market at 2-20 million euros of enterprise value is inefficient and opaque - and therefore priced at three to five times EBITDA. Also included are the US figures on how many searches fail, the psychometric assessment of candidates, and the question of who a seller actually wants to hand their life's work to.
Search Funds and ETA | Gautam Basu | Neuvottelija 7
Summary: The channel’s first English-language episode, 25 minutes, and in effect a primer on a model barely known in Finland at the time: Entrepreneurship Through Acquisition, or ETA.
Its hardest single observation is about the nature of the market: the 2–20 million euro enterprise value segment is inefficient and opaque — and precisely for that reason the multiples are three to five times EBITDA rather than more.
And its most honest passage is Basu’s own caveat: the model is simple but it is not easy. In US data, 31 per cent of searchers never find a company within 24 months.
A note on reading this. This is Miettinen’s first episode recorded in English, and he says so. Basu is behind True North Search, so he is also selling his own concept here; Miettinen for his part offers pro bono help on negotiation and valuation questions. Both connections are disclosed openly in the episode and are worth knowing. A full treatment of the subject exists as a separate guide; this article covers what the episode itself contains.
Who Basu is
Miettinen explains that they met through a mutual friend, Marko Tamminen, with whom he worked in London.
Basu’s own introduction is brief and unusual: born in Germany to Indian parents, holds a US passport, lives in Finland. His background is in supply chain and operations management — 20 years as a management consultant, doing performance improvement and transactions. Then he switched sides: entrepreneur, investor and operator. In Finland he is an executive in residence at Aalto University.
ETA in a nutshell
Basu’s definition is compact and worth reading whole, because the whole model follows from it:
For those of us who do not have a unicorn idea or the desire and motivation to start a business from scratch, entrepreneurship through acquisition provides a way to fulfil that ambition. An aspiring entrepreneur can search for, acquire, lead, operate and grow an established business.
The difference from the startup route is the risk profile. The company being bought already has cash flow, revenue and a customer base, whereas in the startup world nine out of ten fail. The returns, on Basu’s account, are quite good compared with venture capital, angel investing or traditional private equity — measured on the same yardstick, the internal rate of return.
Three routes
This is the episode’s clearest structural passage, and worth remembering because in public discussion “search fund” usually means only the first:
- The search fund. Capital is raised from a selected pool of investors who buy units and fund a 12–18 month runway to search and acquire. The model was pioneered, on Basu’s account, by Irv Grousbeck of Stanford Business School.
- The self-funded search. The aspiring entrepreneur funds the search and acquisition phase themselves.
- The accelerator. A partnership giving access to expertise, knowledge and capital.
Basu’s own concept, True North Search, is the third route. Its rationale is a gap in the market: traditional ETA models took off in the US around the elite schools — Stanford, Harvard, Chicago. Basu teaches at a business school himself and points out what makes the gap structural:
Most business schools do not teach how to buy or sell businesses.
Miettinen’s response: definitely not in Finland.
Why now
The demographic argument is what makes the subject Finnish rather than borrowed:
| Finnish entrepreneurs aged 55 or over | ~30 % |
| Retiring within the next | 10 years |
| European business value at risk of being lost | ~EUR 7 trillion |
| Finnish companies seeking a new owner | up to 40 000 |
The logic is simple: without a succession plan or a son or daughter to take over, those businesses go by the wayside.
The same phenomenon repeats, on Basu’s account, in the Baltics and particularly Estonia: companies founded in the 1990s after separation from the Soviet Union are now at the same succession point. True North Search’s geographic scope is accordingly Northern Europe — Finland, Sweden, Norway, Denmark and the Baltic countries.
Basu’s own acquisition — and where it departed from the model
Basu describes an acquisition he made in the US in energy services. It was successful, but he flags the exception immediately: it was a turnaround, not a classical ETA target, since the model calls for steady cash flows and revenue.
Miettinen’s reading is that the operations background gave the confidence that the company could be improved — and Basu’s answer widens that into a principle:
With this model, either way you are going to have to roll up your sleeves and go down to the shop floor and do the nitty-gritty stuff. That is part of leadership.
The other variant is buy and build: acquire a platform company first and add bolt-ons on top.
What kind of person this suits
This is the episode’s most usable passage, because it is specific rather than flattering.
You do not need to be a top MBA. Miettinen’s formulation is that being down to earth actually helps, and that the programme puts a person through a Jedi academy where they are taught to buy and run companies. Basu agrees: the core skills can be taught.
Hard skills. Basic finance and accounting: what a P&L is, what a balance sheet is. Fundamentals that can be taught.
Soft skills. Leadership in a transition environment — and persistence. When Basu says grit, Miettinen supplies the Finnish equivalent: sisu. The reasoning is concrete: during the 12 to 18 month search you have to reach out to companies, and that means cold-calling strangers. It is not the hardest thing, but you have to do it.
Age. Someone in their late twenties can do well, but Basu says a person in their forties who has done line work is a particularly good candidate.
Psychometric assessment. Candidates are also screened by testing. Basu’s reasoning is even-handed: everybody has blind spots. One comes from finance, another from operations, a third from sales and marketing — that is their strength, but what matters is identifying where a person needs help and where they can develop.
And one thing that sets this apart from ordinary accelerator talk: True North Search works with performance psychologists, because a search can be lonely and burn people out. Well-being is very important to us.
The search: strategy, funnel, criteria
The process Basu describes is the episode’s most concrete section.
First a search strategy and investment criteria. A typical target: EUR 2–20 million in revenue, EBITDA around 10 per cent if you want a relatively healthy business — plus a chosen industry sector.
Then the funnel:
300–500 targets → 100 → 20 → letter of intent → due diligence → one.
Miettinen’s dry interjection sums up the logic: you only need one. And the qualification that matters: you cannot have two, because you have to commit.
And then you negotiate — the purchase price. This is where the episode connects to the channel’s own subject.
Why the market is cheap
This is the analytical core, and Basu presents it as a causal chain rather than an opinion:
The beautiful thing about this market is it is highly underserved. With companies of enterprise value of 2 to 20 million, it is a highly inefficient market. It is highly opaque. So the multiples are a lot more attractive as well.
In practice three to five times EBITDA. Miettinen adds that deferred payments may also be part of it.
The financing stack is, on Basu’s account, deal-specific: traditional senior debt, some seller financing and of course equity.
The funding side is equally flexible. Miettinen sketches two models: a loose ad hoc consortium in which people interested in a sector sponsor one entrepreneur without a formal fund — or the more professional route of conditional commitments from investors. Basu’s answer is the same to both: it is really up to the individual searcher. We support them along the way, but in the end they do the work.
Simple but not easy
The episode’s most important caveat, and Basu offers it himself without being asked. From US data:
- 31 per cent of searchers do not find a company within 24 months.
- 11 per cent of those who do acquire fail to create optimal value after the transaction.
Which is why True North Search works with the searcher through the whole cycle: after the acquisition comes operate and grow, the operational improvements and revenue growth strategies.
And what remains even when it fails is, on Basu’s account, real: human capital and experience, valuable in themselves.
Is this exploiting the seller?
Miettinen puts the uncomfortable question directly: a trained buyer negotiates with a seller who has never been in a deal — cannot you make far too good a bargain out of that?
Basu concedes it without hesitation, and it is the episode’s most honest moment:
That is typically the case. That is a great point. These folks who are retiring — this is their life’s work, their legacy, and they have never been in a transactional or deal environment. So obviously we are at a bit of an advantage in the negotiation.
But the counter-question matters: what is the alternative? Miettinen answers it himself — the alternative is winding the business down for liquidation value, which is very low. And many owners do not want to run their life’s work into the ground; they want it to succeed.
Which brings the episode’s joke, which Miettinen flags as a bad one himself:
When a man with money meets a man with experience — the man with experience leaves with the money and the man with money leaves with an experience.
Why value is so easy to create
Basu’s description of the typical target is ETA’s most concrete promise: they have not modernised. The website looks like it is from the 1990s.
He offers an American sporting analogy and Miettinen a Finnish one: blocking and tackling — or in hockey terms skating and puck handling. Very, very basic stuff.
Which produces the episode’s most quotable line:
I like to say it is not even low-hanging fruit — the fruit is on the ground.
So why is this not happening already
Miettinen asks the question that matters most for the whole episode: if it is this good, why is it not already common?
The answer is structural: the deals are too small. The model does not scale into the hundreds of billions in Europe, and in Finland perhaps only into the tens of millions — so the bigger funds may not want to do it. It also requires commitment from everyone, since people have to be trained.
From which follows the frame Miettinen supplies: this carries an impact investing stamp. The social effect is direct and the market segment is underserved.
Basu confirms it and adds a competitive observation: private equity firms are moving ever further down in enterprise value. But his counter-question is the one that decides deals in practice:
When you talk to an entrepreneur selling their business, their life’s work — do you want to sell to a private equity company to be put into a portfolio, or do you want a person there who cares about the employees, their business, their customers?
What ETA solves that private equity does not
Here Miettinen draws on his own field for the episode’s sharpest comparison. In a private equity deal the current owner often continues as an owner initially and reinvests their money — and if management has to be changed later, it can be quite ugly, because in effect the former owner-CEO is pushed out.
In the ETA model the problem is solved immediately, because the buyer arrives with the management — in practice the CEO. And not necessarily just one: Basu confirms that two-person search teams are quite common.
And among searchers a community forms that is part of the product rather than a by-product: a network, peer support, and attention to well-being.
Closing
The episode ends on practicalities: Miettinen offers pro bono help on negotiation and valuation, and Basu invites the interested to an early-April event at the Aalto School of Business in Otaniemi. Miettinen describes an earlier session as a full house.
Both mark the episode as a primer: a follow-up is possible if the subject interests people. And Miettinen leaves open a question the channel has since answered: we will see if I do more English episodes.
What the episode leaves you with
- The segment’s inefficiency is the source of the whole model. Three to five times EBITDA is not good negotiating; it is the consequence of there being no buyers in the market.
- 31 and 11 per cent are the right antidote to enthusiasm. Basu volunteers them, which makes the rest more credible.
- The seller’s choice is not only about price. It is the episode’s one argument not based on numbers — and probably the one that decides the most deals.
Related articles
- Becoming an Entrepreneur by Buying: The Complete Map of ETA and the Search Fund — the full treatment, built on this episode and episode 14.
- Negotiating an ETA Acquisition | Gautam Basu and Mikko Järvinen | Neuvottelija 14 — the follow-up, going into negotiation and deal structure.
- The Exit Process and M&A | Tero Nummenpää | Neuvottelija 26 — the same transaction from the seller’s side.