Guido: Yeah, my daughter was almost by that time four and a half when we closed the company, my second child was born. And so, there, again, great timing because we closed the notary because of Italian bureaucracy, notary on the Friday, and then on the Monday as my first day as the CEO of the company, I was in delivery room because my wife was having our second child so I didn’t go to my job on the first day. So that was the start of my career as a CEO.

(intro)

From SMEVentures, it’s The Search Fund Podcast, a show about hungry entrepreneurs who, instead of starting a business, decide to buy one. These are their stories of success, failure, and the lessons they’ve learned.

Jake: This is Jake Nicholson of SMEVentures and on today’s show, we’re joined by Guido Fileppo. Guido joins several other searchers on this show who were first or early in their respective markets and we have another one coming soon from Portugal. In this episode, Guido tells us how he doggedly raised capital in a market where nobody had heard of a search fund before and how he acquired Farmoderm and managed it through the pandemic while raising a young family.

(interview)

Jake: Guido, thank you so much for taking the time to chat with me today. You obtained your MBA from INSEAD, which is where I went as well and I have to say, I enjoy looking at your background. You’re an Italian with an Italian name, educated in France and the UK, worked in the UK then all the way to Australia then back to Switzerland and France and Italy. It’s very representative of the INSEAD student profile and ethos so I’m excited to dig in.

Guido: Jake, thanks. Thanks a lot for having me on this. Pleasure.

Jake: Let’s start from the beginning. Where did you grow up?

Guido: Complicated question. So I grew up in — I was born in Italy and I moved to France when I was 12 years old so then I completed my high school and university in France, as part of university then I did an Erasmus exchange in London and I decided to stay there for my master’s degree and then I started working in a consulting firm there. So, I grew up halfway between Italy and France but, you know, most of the formative years was in the latter part of my study so university and my first job in London, so a little bit international, in that sense.

Jake: What languages did you speak growing up as a kid?

Guido: I always spoke Italian in the family but then, of course, I was kind of forced to learn French when I moved there. But within the family, it’s always been Italian, even now with my kids, I speak Italian. And then, of course, for most of my professional life, before the search fund, it was always in English.

Jake: And where in Italy are you and your family from?

Guido: So I grew up in Biella which is a small town between Turin and Milan in the north of Italy. And I then lived near Paris, near Versailles, for almost nine years so it’s quite a big chunk of my life.

Jake: And as a young kid, what were you like? Were you obedient and rule following? Were you experimental? How would you characterize yourself?

Guido: I think I was pretty obedient when I was smaller, that’s why I don’t understand how my kids are not obedient. But I guess that growing up as a teenager was always respectful of the family but I kind of transgressed a little bit but always kind of hid in a hidden way. I wasn’t rebellious. But also, I lost my dad when I was 10, and that’s part of the reason why we moved to France, and because of that, I was probably quite diligent. I wasn’t too bad. 

Jake: Did you have any hobbies? 

Guido: Not really, no, apart from music, music and playing football. And then hanging out with my friends with my mutual hobbies growing up —

Jake: Were you a good student?

Guido: — not very complicated. Yes, I was. I think I was lucky enough, even having changed countries. I was always interested in languages so it wasn’t that big of a problem. And also, yeah, I was never — it was never, to be honest, very difficult for me to be good at studying. I just knew what I needed to get done so I was doing the least amount of effort to get the work done. And I think it also helped that I was in an international school in France so the first year basically was slowly leading into learning French and getting the hang of it. So in the end, it was not too bad.

Jake: The international school upbringing is an interesting one and I think gives you a differentiated perspective on the world. Were you aware at the time that you were being given a different lens than maybe some of your peers?

Guido: Maybe, yeah. Well, I mean, especially the gap was really wide between my good school friends in Italy, which I’m still friends with them after all these years, and the people I was meeting in the international school. So it’s a bit like the INSEAD program before the time. And it was a really good international school in the sense it’s a public international school, especially for the Italians and, you know, Mediterranean coming in so it’s a public French school with added on top of that some literature and history in your own language and nationality. So it’s a strange international school, you know? It’s not your typical private school for rich kids. There were a lot of privileged kids but there’s also normal people like me and others. And, yeah, I was aware of the big gap between the upbringing there and then what was going on in my hometown, and in the end, that’s probably due to that that I was then really interested in kind of traveling and then studying abroad. So that definitely sparked an interest in me, you know, as you said, then I kind of took advantage of that and tried to live a little bit everywhere in the world after that.

Family businesses: entrepreneurship in his blood (6:14)

Jake: You went to university in France to study business. Did you come from — were your parents businesspeople? What inspired that decision?

Guido: Kind of both, I think, you know, as an 18-year-old, I didn’t have much clue of what to do and so business was kind of the go-to places. My family, on both sides, had entrepreneurship in the blood. So my grandfather had a construction company in Africa on my mom’s side, and then after the war, then translated that into a construction company in France. And then on my dad’s side, you know, Biella, where I grew up, it was a big textile hub for Italy. Now, you know, since the 90s and the Chinese competition, it’s a lot less, but so, yeah, there was entrepreneurship and also my mum, within the field, she’s a pharmacist so when we moved the France, she bought her own pharmacy so she was a small entrepreneur. So that definitely, you know, the business mindset was always there, even though it wasn’t so, let’s say, conscious in my head, but business studies was just a way to get to university without making a really drastic choice, you know, doing engineering or doing medical studies which then sets you in that specific direction.

Jake: You said your mom bought a pharmacy?

Guido: Yeah, yeah. Yeah. So she was always used to be a pharmacist but then when we moved to France, yes, she bought a small business in Paris, a small, small pharmacy.

Jake: That’s fairly unique to have a parent that has already shown you that buying a business to run is possible from an early age. 

Guido: Yeah. 

Jake: Did you see that as a possibility for yourself from an early age?

Guido: No, but you know what, it’s the first time I think about it, now you’re mentioning this, actually, yeah, my mom did a kind of search fund, like a self-funded search. I never thought about it that way, which is basically when you’re a pharmacist, that’s kind of the way you go. You either inherit a pharmacy or you try to buy an old pharmacy. So, in a way, actually, even my brother now did that and bought a stake in a pharmacy as well because he became a pharmacist too, but I never thought about in those terms, but it’s true, yes. She kind of did that. Maybe subconsciously, I knew that was an option but, actually, I never thought about it that way. 

Jake: You have to go thank your mom after this conversation.

Guido: Exactly. Exactly. 

Taking the scenic route: consulting, finance, and risk management (8:35)

Jake: So you finished school, now we’re fast forwarding a little bit, and you don’t go into entrepreneurship right away. In fact, you go quite a different direction. Sorry, I should also mention that you did some of your studies, you did a master’s at LSE in accounting and finance and that probably, I assume, honed your career path a little bit and launched you into what you would do next.

Guido: Yeah, exactly. Well, pretty lucky, at least it decided what I didn’t want to do.

Jake: What do you mean by that?

Guido: So a lot of my classmates went on to investment banking, you know, the master’s in finance, and in 2005, that was the big deal, especially before the collapse of Lehman Brothers. In London, as a young professional, investment banking was a big thing and I originally thought that could be an option for me and shortly after a few interviews, I realized that that wasn’t the environment I wanted to have for myself, and then I had the opportunity to join —

Jake: Tell me more about that. What turned you off it? What about the environment was not appealing to you?

Guido: It was with kind of the closeness of the environment, the competition and always looking, you know, at what your rival is doing and, I don’t know, it didn’t seem to appeal to what I wanted to do. I cannot pinpoint it in words but I knew after the first few rounds of interview that that kind of environment wasn’t good for me. I wanted to find something where I could enjoy myself, learn a lot, of course, it was my first job, like enjoy myself while I was doing that. And it didn’t seem to me that these guys were enjoying much what they were doing.

Jake: So you decided to go into consulting. 

Guido: Yep. 

Jake: At Protiviti. Did you get what you wanted there?

Guido: Yeah, I think so. Originally, I chose consulting because I thought, okay, this is a great way to learn about a lot of businesses and a lot of different topics in a short time. And I decided to join Protiviti because, at the time, the consulting firm was really small in London, they just opened, I think, the year before the office so when I joined, there was maybe about 30 people in the office. When I left, there was about 100. So, it grew quite quickly. And I thought, oh, this is a great way to kind of start and see how it goes. And in the end, I had a lot of opportunities there because of the size of the firm, you know, I was able to be promoted quite quickly and essentially, for me, it was a perfect job because I speak French and Italian, I was most of the time on assignments abroad so either in France or mostly in Italy and so it was the perfect balance so I lived in London for the weekend and then during the week, I was away on assignments. And so, yeah, that worked out really well.

Jake: What did you take away from those four years other than some travel and life experience? Were there particular ways in which you developed or things that you learned or ways that you — additional perspectives on your career path that you gained from those four years? 

Guido: Yeah. You know, grew from the first few assignments like a clear idea in my mind that I wanted to do more in the business. I didn’t wanna just go in, you know, assess one process or assess one particular project and then go out. I really thought, okay, this must be a way that I can be the one actually making the decision and not the one kind of advising or at least analyzing the situation for a client. So that thought was pretty early in my career. But, of course, I didn’t know by the time how it could materialize, you know? Just wanted to get the first few years of experience done and then see what went on. And that applied after as well with my choice to kind of then step into industry because I thought, okay, I can bring my consulting background and all my experience into a company, so first an energy company in Australia and then a pharmaceutical company in Switzerland, so I can take all those skills and then apply it to a company and I can have greater, let’s say, say on the outcome and greater management of the project. But in the end, then I realized, yeah, no, that’s really not what I want. It’s not enough. I wanted to get some general management experience and that’s why I decided to go to INSEAD to kind of break away from my experience before and then try to do some general manager.

Jake: I often hear that from former consultants that they had some projects where they were more operational than other projects, some projects where they’re closer to the client, more on the ground, if not actually implementing the advice and being close to where things are implemented and for those that choose a different career path and more operational career path, that’s what inspires them. The closer they get to the operations, the more excited they feel and that ultimately drives them away from advisory work and to operational work. Does that accurately describe what you experienced?

Guido: Yes, yeah, that’s exactly it. And then also the closer you get to decision making and the operational side, as you said, the more you get — the closer you get, the faster you wanna get to that operational position, you know? Because you can see all the ramification of the decision, you can actually see what your role could be in a specific company. So I think the closer I got to that, the more I was saying, okay, now it’s time to actually do something different and I think that’s why after implementing an enterprise wide risk management program for the company I was working for in Switzerland, which was great because I had a global role, it was very fulfilling, but after a while, I said, okay, there’s all this risk that we map in the strategy sessions but, actually, I would like to be part of the strategy session, not just part of the team that consults the board or the general management, and that’s probably why then I took the plunge. And when my wife was pregnant, I decided to quit my job to do the MBA. 

Jake: We’ll definitely get to that. So, you’ve got these initial four years of consulting and then — so why didn’t you just go straight into something operational in the UK or your home, France? Instead, you decided to go to EY in Australia and then a different company in Australia and then Switzerland. Why the geographic popping?

Guido: I kind of kind of visited Australia a couple of times before and really thought I wanted to give it a shot at living there. And in the end, actually, yeah, the UK, after a few assignments that I had in London where basically it took me more time to commute within the city than actually going to Heathrow and take a plane to Italy, I was like, I’m done, I’m done with this life, you know, because we might have a consulting project, I don’t know, in Watford or in Leeds, outside London, in the north. So I decided that, you know, I think I was a little bit bored with the consulting life that I had, after being promoted to manager actually took a sabbatical, and I traveled for around a year in Australia and New Zealand so I did the usual bought a van and then went around for a year. So that was my career break. I was probably at the time was thinking of maybe doing an MBA but I said, okay, no, I need a break, do something completely different. And, yeah, during that time, then I decided, okay, what’s my priority? I think the priority at that time was the geography. So I decided to stay in Australia. And within that kind of frame, the easier was to get a job in the same line of work that I did in London. It would have been — especially for visa requirements so it was easier for me to stay and apply at EY rather than trying to do something operational over there. So that’s basically the reason why I decided to stay in that line of work. 

Jake: So, Guido, I have to say, in looking at your background before this conversation, I see risk management, finance degree, EY, big companies, and I didn’t get a hint that you would choose an entrepreneurial path after INSEAD. I’m starting to understand a little bit now, given your family roots in entrepreneurship and this spontaneous van trip in Australia, this gives a little bit of a hint of what’s to come and, curious, in these — I mean, Ferring Pharmaceuticals is like a 5,000 employee company, I think, did you feel comfortable in these places? Did you feel like you didn’t belong? Are you the kind of person who can feel at home anywhere? Or did you sense a bit of dissonance between your character and your environment that you needed to solve? 

Guido: Yeah, so interesting question. No, I’m the kind of person that can feel comfortable a little bit everywhere as long as the environment is right. But, no, as I always say, and we used to say also when we were doing this as a job, risk management is not about avoiding risk, it’s about taking the right one. And that’s sort of what I did in my life. There’s different priorities, different stages in life. So, at that time, no, I thought, like a career in industry could be the right way for me. But in the end, I realized after two stints of companies, that even being inside the company but not being operational was not enough. So that definitely, after a while, like you grow into your role, you implement everything that — where there’s changes to be done, I was feeling always very excited but then once the changes are done and you’ve done your bit and it becomes business as usual, then you feel a little bit bored. That’s why the consulting before was great because there was never time to be bored. So, yeah, I can see how it’s a bit — like my personal life was always very different than my professional life, in that sense. I always took a little bit of risks in my personal life while the professional life was the one with processes in place.

Jake: Alright, so your wife gets pregnant and then you go to an MBA? Or what’s the sequence of events there? And why did you wanna get an MBA? You already have a master’s from LSE and some good professional experience, what drove that decision?

Guido: Oh, no, my wife got pregnant, and then I was gonna, maybe as a sign of life, okay, I’m going to become a father, what do I want to do with my life? I don’t know. I always wanted to have an MBA, but then, at the time, decided to actually move to Australia and then once I was in Australia, you know, I didn’t wanna come back to Europe or go to the US to do an MBA at that time. I was enjoying my life there. And then I always thought, like, oh, I could get maybe a way without it, and after a while, after, you know, almost 10 years’ experience in some sort of risk management role, I decided that, you know, the quickest way to get to what I wanted to do, so more general management, was to do an MBA and try to get into a top MBA on top of that, because, as I said, I had a lot of experience already so I didn’t want to risk it too much. So, yeah, so, basically, the realization was that. One is that I wanted to do a change in my career. And then, two, that change wasn’t gonna be quick enough if I stayed in industry, because, you know, I was in the talent program of the company but you never know how long these things can take, right? And so having a family that kind of all pulled together into an idea, I said, okay, well, I can quit my job a little bit earlier so I’ll get six months, you know, without a job before starting the MBA so I could bond with my daughter and so it kind of all fell through. Like every big decision, there shouldn’t be too much thought, you know? You should just, once you have it, just go for it. Go with it, otherwise, you start thinking too much about it and get lost.

On the entrepreneurship path (20:18)

Jake: Now, given what you’ve told me so far, I would guess that you thought post MBA you would be getting a general management job in a corporation, you would get a salaried job, but that’s not what happened. Tell us about that evolution. What did you discover as an opportunity and perhaps about yourself during your time at INSEAD that led you in a different direction?

Guido: Yeah, I mean, my idea was always to get into some sort of entrepreneurship but, you know, my idea of entrepreneurship before INSEAD was that I needed to have a great idea that was good enough to quit my job and then to start a company, because that’s usually what the story’s about, right? And I always had millions of ideas but none that were like good enough to actually do that. So that was still in the back of my mind for many, many years, since I started working. Actually, even since university, I always thought I need to be an entrepreneur, I need to get something for myself, but there was always an idea there and then priorities, as I said, priorities in life get in the way, you know? This job is good, I can travel, or, you know, I wanna travel to Australia and all that so then it’s kind of always postponed. And then when I went to INSEAD, the realization was that, wow, there’s so many options. Doing an MBA does that, I think, in any particular direction, like there’s not one direction but it confronts you to a lot of possibilities that by being in, you know, in your industry for 4, 5, 6, 10 years, you kind of forgot they were there, you know, so talking about startups and venture capital, private equity. I mean, a lot of different career path that you could do. And so I started kind of thinking, okay, what can I do? So, of course, you know, my idea was to go to semi-entrepreneurship so, you know, maybe get a job in an early startup that needed a general manager working for a specific country, for example. And then, finally, you know, before, I think it was, for the fourth period of the MBA, there was the course on search funds and that’s where I kind of realized, okay, I think I found what I needed to be doing,

Jake: And what was it that lit that fire? And second part of the question, why at this point in time? I mean, I talk to prospective searchers all the time who say this path sounds really interesting but either I have small children or I’m about to start a family so it’s not the right time. Here you are, a student who is about to have your first kid and that’s exactly when you decide to launch your search fund. Why did you think now is the right time to do that? 

Guido: Yeah. Well, I think, to come back, when I realized the search fund model was great for me was twofold, I think, mainly. There’s a lot of reasons but mainly two. One, it was really reconciling the fact that I wanted to be an entrepreneur, I wanted to kind of try to be a business owner, and the realization that I didn’t need to start something from scratch in order to do that. I could actually find some capital and buy an existing business. And that, for me, was, wow, like, I didn’t know that was possible that I could raise some money in order to buy a business. So once I realized that was possible, I said I wanted to try. And the second reason was, okay, I lived, as you said, you know, most of my life outside of Italy but in the back of my mind, I always wanted to come back but I wanted to come back with a serious plan, and I just found the serious plan, to buy a business and do something significant in my own country. So that was kind of the two things that resonated the most with me. And in terms of the second question, I think, I mean, what’s — there’s no better moment when you have a career break to actually take the plunge. Because, you know, you’re not stuck in a corporate job, I already can quit my golden handcuff job in Switzerland so I already broke that kind of spell. And, in the end, you know, I was lucky enough that my wife supported me, you know, my daughter was eight months when I started the MBA program and I thought, well, I’m gonna try to do this thing and it’s probably gonna take maybe a year, and, in the end, it ended up to be a year without salary again, self funding the MBA and stuff. I’m lucky enough that, you know, she was supportive and we tried it, but I think not to have anything in the background that stands in your way, in my case, you know, I didn’t have a mortgage, I didn’t have fixed expenses, so, yeah, for me, the decision was easy. I mean, like I said, now, if I think about it, it’s like, oh, what made me do it? I can’t really pinpoint it. I just said this is what I wanna do and, you know, I’m gonna do it, I’m gonna try to do it. If it doesn’t work, I’ve fallen back on my feet. I’ve just earned an MBA from INSEAD, I had my experience before, but I think that’s the best way to do it, after a period of reflection that is the MBA, I think it’s the best way. My advice to a lot of people that contact me, “Oh, yeah, I’m gonna do it maybe two or three years after the MBA,” I always say, well, be careful because the longer you wait to do it, the harder it will be to kind of break away, you know, you’d be more senior in your job, you know, when the kids, you know, when they’re small, they’re not that demanding in terms of money.

Blazing the trail in Italy (25:43)

Jake: So you decided to launch a search fund in Italy to buy a company in Italy. Remind me what was the landscape of search funds in Italy at this time.

Guido: Well, it was none. It was a green field. So that was another risk. Basically, the search fund model was never really imported in Italy yet. But, on the other side, Italy is full of SMEs and so it will be a market that is really perfect for the search fund model. So, yeah, that was a risk that I took. On top of the fact that I didn’t have any network in Italy because I never worked here really. It was a calculated risk. And so actually, in that sense, the INSEAD community helped me a lot in the beginning to get some meetings and try to talk to people about the model. But, essentially, nobody had heard of the search one model, didn’t know what it was, and so, yeah, a good part of the first three or four months, fundraising was about putting the word out there that this existed and then trying to get some traction. But, yeah, it wasn’t easy.

Jake: So who did you go to? In Spain or US or Canada or Mexico or Brazil, there are investors who have invested in not one, not two, but dozens of search funds before and that’s who you go to, because they understand the model, they’ve made money through the model. Even if they’ve never met you before, they’re comfortable investing in a smart person and a model that they understand. There’s nobody like that in Italy at the time. 

Guido: No. 

Jake: So where do you go?

Guido: Good question, but, I mean, as I said, my first port of call was the INSEAD alumni community. In that sense, I made one of the mistake, I assumed that venture capitalists would be keen to, you know, to listen to my story. And even though, you know, they opened the doors for me, by the first meetings, I quickly realized that it’s a really different type of investment than what they’re used to. But my angle was investing in a searcher, it’s a lot like doing an angel investment or a seed investment to a startup. You don’t really invest in the idea, you just invest in the team. And so if you believe that that person is capable of bringing it, then you invest and you know that the idea will change maybe 20 or 50 times before it reaches the market, right? But, actually, yeah, I think sometimes, maybe that’s my perception and I don’t wanna generalize, but some of kind of the return that you promise the investors are almost as high as their funds and, you know, but they might have some 20x outcome, 30x outcomes, and some that are total loss. I don’t think they’ll really understand the concept. So then I quickly turned into private equity professionals, and those were a little bit more open to the idea, but it wasn’t easy, because, as you said, you know, you have to kind of explain the whole philosophy around the search funds, which in other countries was already established, I guess.

The struggles of the search (28:47)

Jake: Walk us through the timeline from when you graduated to when you started fundraising to when you finished fundraising and actually started searching full time.

Guido: Yeah. So, basically, I started September 2016 so just after graduating in July, that’s where I decided, during the month of August, okay, I’m gonna do this, so in September, I kind of started to write my PPM and, you know, having the usual chats with searchers and understanding the environment. And so that took probably about a month, then I started probably fundraising around end of October 2016. And then after that, it took a good 10 months to close the fund. So, all in all, it took a year after graduation to do it. With hindsight, I should have started from, you know, almost, you know, writing my PPM and fundraising during my MBA but, you know, the idea wasn’t fully there, like I was seriously thinking about it but it wasn’t fully formed. So from when I started fundraising end of October and then I closed in July, I mean, I had all the commitments in July but it took another month to kind of close the fund. So, yeah, it was a long timeline so there’s two reasons. One was because community in Italy just wasn’t there so it took a long time to get local investors. And then once I got one or two local investors, I quickly realized that actually that’s what I needed and so I focused a lot more on Italian investors rather than international investors, whereas my plan out of INSEAD was to do exactly the opposite, like most of the international search funds, you know, get most of the funds that invest in international search funds and then find two or three local investors. In the end, I decided to put a lot more weight in local investors and that’s also why probably the timeline got pushed a little bit more. But in the end, yeah, it took almost a year to do the full circle.

Jake: So if I put myself in your shoes at this time, I’m getting pretty discouraged and nervous and I’m sure the family is starting to ask questions and the more times you hear no, some people start to doubt the venture that they’re embarking upon, I don’t know if you’re one of those people. Charles and Taeksu, in Korea, just raised Korea’s first search fund, and I believe they spoke to upwards of 120 investors before they closed their search fund and it takes a lot to stick with it when a hundred of those are noes. 

Guido: Yeah, yeah, it’s true. 

Jake: Did you consider at any point during that process throwing in the towel and saying, “Dang, this is too risky, I’m going back to my corporate job”?

Guido: It crossed my mind, it crossed my mind, but I was lucky enough, my wife was saying, you know, “I don’t want you to get another corporate job because I know how miserable you are after a few months, so there’s no way, just stick with it, and then go for it until — if it’s a definite no, then it will be a definite no.” But joking aside, yeah, I mean, I knew this was gonna be difficult. When we started the search fund model, you know, the quick wins, basically, are the, you know, close friends and family that could chip into your search, but I didn’t have that. Well, it’s not that I don’t have any friends but there were no very wealthy friends who could throw in like a unit or two into my fund. And so I knew that going into this, I know the matrix of who knows the search fund and who knows Guido, I was in the no-go zone so I was going to — when people didn’t know the search fund and people didn’t know me. So I knew from the start that I was not starting at zero, I was starting at minus ten, but I knew that from the onset, but I was motivated to do it. But, of course, like everything I said, you know, I’m gonna take a calculated risk, I’m gonna give myself some milestones, and then at which I’ll reassess my project. So I knew by starting the fundraising in end of October ’16, I think I said to myself, okay, in February ’17, if I don’t have not even one Italian investor, I’m gonna start to kind of think about what I’m gonna do next. I was lucky enough that probably around the third week of February ’17, I got two investors. It was a pretty good day to have my first yes, as you said, after the first no. And then I had several milestones like that along the way. So, okay, I need to — I really wanna do this but, you know, there’s a thin line between passion and motivation and obsession, right? So I wanted to kind of have some clear milestones for me to reassess so I did that and it went quite smoothly. And on top of that, yeah, like my family was very understanding which helped a lot. But I have to say, when I’m go into the money and the search capital coming in, I was very relieved because my savings were really, really thin at that point so it’s good to see that it was closed. Yeah. So I think — you said 120, I think probably I spoke to probably 150, probably 150 meetings, yeah. The success rate of about 10 percent in the end and I think I closed my fund with 17 investors.

Jake: Yeah, I think people need to hear that, especially people in new markets, you know? Otherwise, they would go to a few meetings, get a few noes and think it’s not possible. But, you know, it’s a numbers game.

Guido: Yeah, exactly. There’s two stories there. I think when I was reaching out to searchers, of course, I spoke to Marc a couple of times, Marc Bartomeus who did the first search fund in Spain. And, you know, just conversationally, I think he said, “If you need to speak to 100 people, then you’ll speak to 100 people,” you know? And then that stick to me, it really stuck. So, okay, it’s a numbers game. Like the search process to find the company, it’s a numbers game. In new markets, finding investors is a numbers game, you know? It’s not for everyone, investing in a search fund, you just need to find the right one. In order to find the right one, you need to be lucky and to be there at the right time and the right place. So you definitely need some time. But, yeah, I think — I don’t know if I mentioned it but my first meeting, that was late October ’16, organized the meeting in Milan, you know, like I think, planned like eight meetings in the day and then my first — during my first meeting, the reaction was. “This is an American model, never work in Italy, I don’t understand, you did INSEAD, why didn’t you go and work at McKinsey?” Things like that. “Just go and apply to McKinsey.” Yeah, okay.

Jake: I have to point out too that you’ve mentioned your wife a few times and her role in this whole process and that can’t be underestimated. The few searchers I work with, it’s a crucial part of the equation. And if they’re not on board, it’s gonna be a much harder path. And if they are on board, you can keep going for a lot longer. And it’s good that you that you highlight that. 

Jake: So you searched — so you spent about a year raising capital. If I can infer from your timeline here, it takes you about another two years, almost another two years to acquire something, is that right? 

Guido: Yes, exactly. 

Jake: So I have to ask the question again. During that two-year period, you surely had a number of failed deals, a number of doors shut in your face. At any point, did you think during that period, “Gosh, this is too hard. I gotta do something else”?

Guido: No, no, during the search, it never crossed my mind. I mean, when I was dealing with the last few things about, you know, closing in on Farmoderm, I had a few doubts. “Wow, if this doesn’t work, you know, so many lawyers’ fees that are starting adding up, okay, what I’m gonna do after?” But it was always like, okay, I need to get some more runway to look for another company. So I think once — yeah, there’s been a lot of disappointments here and there during the search but I — yeah, no, I never doubted the fact that, you know, that’s what I wanted to do. And, of course, I always knew there was a possibility that I would close the search without an acquisition but, you know, I was gonna fight it until the end, not until the last euro in my bank account.

Jake: And your daughter was turning one year old, two years old. Was there another child in the works?

Guido: Yeah. So, yeah, my daughter was, oh, no, almost by that time four and a half when we closed the company, my second child was born and so there, again, great timing because we closed the notary, because of Italian bureaucracy, you have to go to the notary on the Friday, and then on the Monday as my first day as a CEO of the company, I was in delivery room because my wife was having our second child, so I didn’t go to my job on the first day. So that was the start of my career as a CEO. So, yeah, that was quite — everything was happening at the same time.

Jake: I’ll be interested to hear about those first six months particularly as with a new child at home. First, tell us what Farmoderm does. 

The acquisition: Farmoderm (38:18)

Guido: Yeah. So Farmoderm is — it’s a company that produces and commercializes skincare products and we’re especially, say, specialize in personal hygiene and skin protection. So it’s very specific skincare. And it’s mostly B2B, in the sense that 80 percent of our revenue is within nursing homes. So we provide basically all the essentials for carers in nursing home to clean the patients and protect them. So that’s our main business. And then we also have like some other selling channels, but that’s our main core business, let’s say.

Jake: Very interesting. So you often hear advice in the search fund world to do nothing for the first six months, just watch and learn, don’t break anything, sometimes six to 12 months, they say, and this is often kind of a relief to hear for searchers who, despite their beautiful pitch decks that show exactly what actions they’re gonna take and when, in what priority, they’re often frankly not always sure what they’re gonna do post acquisition. So I’m eager to hear, with a new child at home, new CEO of a company that you just bought, were you able to — did you take that approach of doing nothing and learning for six months and spending some much needed time at home?

Guido: That would have been great just to do nothing for six months or 12 months, but, unfortunately, I mean, I’m probably not the only one in that position but, you know, there’s always things that can go wrong after you buy a company and, for us, definitely things went wrong. I mean, for me, yeah, the first six months were tough in the sense that, you know, I was living in Turin so commuting around 300 kilometers there and back to the company. But, you know, it’s manageable. But then, yeah, about I think three months into our period of management, our main third party manufacturer went bankrupt so we have — we’re producers but we have a very specific setup whereas we buy all the materials, all the chemical products and the packaging and everything and we just send it to a manufacturer who actually does the, you know, the bottling for us. And so that manufacturer went bankrupt and he was doing about 95 percent of our products. So, for us, it was already a high risk while going to the company and, you know, it was already planned that we’re looking for alternatives, but it just didn’t, you know, it had to happen a lot quick. So, you know, end of November, they — we found that there are some difficulties and then, basically, they told us they would close the company within a week. And we were kind of the first one to know, not even the employees knew about the situation. So there I was in December, standing outside the gate of the producer, like I’m trying to tell the employees of the company were on strike to let us come in and take our products because we need the products to sell. So that was interesting. And so we quickly had to kind of, you know, look for other producers. Luckily, we already started because of the, you know, because we wanted to kind of diversify already the production. But still we had to do the tests and everything. So here we are extending the test with other producers at the beginning of January, end of December, and then, basically, in February, COVID hit Italy really bad. And so our, you know, our luck was that we managed to get the production running at the new producer just in time, you know, everything in Italy was struck, you know, before everyone else with COVID. So, yeah, we’re lucky there that we managed to do that. But, yeah, I think it would have been nice just to look from the side but I think you have to be ready to kinda do whatever it takes to kind of keep the company running.

Jake: There’s nothing like your primary supplier and shutting down and a global pandemic hitting just as you’re starting your CEO career. Now, let’s fast forward a little bit. I mean, obviously COVID is not finished but, presumably, your day to day looks a little bit different now than it did month 3, 4. What levers are you pulling now to create value in the company?

Guido: Yeah, yeah. COVID is — I think the consequence of COVID will stay for a while, I think in the business, especially in the terms of the supply chain. So at the beginning, we’re hit a lot in sales, because, of course, you know, we deal with nursing homes and nursing homes were the most badly hit, you know, in Italy in terms of COVID. But, now, like really we have a lot of pressure in the supply chain and rising prices of raw materials and availability of raw materials, which is even more worrying. But having said that, now, like, you know, we’ve seen in the last few months, the sales, it’s a lot easier to kind of go to new clients and open up new opportunities. So, right now, what I spend my time on during the first two years, with a few delays because of the pandemic, is really structure the business. So right now, I’ve got a — you know, last year, we hired a new sales director so restructuring the sales. We completely overhauled the way that the company was selling the products before. So, before it was externalized to sales agents. And then in the last month, we kind of internalized most of them so hiring employees to do it with the help of the sales director. We now have a new supply chain director, which looks after all the, you know, the purchasing and the planning because, yeah, there was basically no planning before the producer went bankrupt, there’s a lot of things that you need to improve. So right now, really, it’s taken a long time to kind of structure the business in the way that can scale. And I think now we’re at a pretty good point where we can actually do the growth. So we’re trying to kind of implement all the levers that we identified during the acquisition phase. And as I said, a lot of plans like internationalization halted because of COVID but now we’re trying to revive them as we get out of it. And especially now, you know, with the new sales force in place, we’ll hopefully be able to open up new markets and new geographies.

Past, present and future goals (44:50)

Jake: You’re a few years into your entrepreneurship through acquisition search fund project now, which presumably you started because you had some goals in mind, some professional goals, some life goals. Do you feel you are on your way to realizing, to achieving those goals or do you still have a long way to go?

Guido: Yeah, in terms of the business plan that we presented to investors, the thing, you know, we had two years of — almost two years’ delay, you know, in execution just because of COVID —

Jake: For you. For you personally.

Guido: No, for me, I think I’m where — yeah, I’m really where I wanted to be. I’m really enjoying my role. I’m really enjoying, you know, what I’m doing in the business. I didn’t have many plans in terms of I have to do this by this year or I didn’t have a timeline really involved but my main goal in starting this is really getting the hang on entrepreneurship and really learn a lot in the process, I think. For the moment, the search fund has delivered that for me. From A to Z, you really learn a lot during this — now, it’s been almost six years that I’ve done that from start to finish — well, not the finish but from start to now and it’s really, you know, learning how to fundraise and then, you know, entrepreneurs trying to acquire the business and do an acquisition, which I never did before, and now managing a business with all the firefighting and then strategic decisions that need to be made. So, for me, this is — I don’t know, I don’t really see an end to it for the moment. I just see a lot of opportunities to actually do better and learn more professionally for me and then to see what happens next, because that’s also what excited me about the prospect of a search fund. There’s a lot of possibilities after, you know? You can decide to stay in business, you can decide to be an investor, you can decide to be a board member, you can do a lot of things.

Jake: So that leads me to my next question, I don’t know exactly how old you are but I assume you’re in your 30s somewhere so you still have quite a bit of runway in your career. Let’s say 15, 20 years from now, where do you see yourself? Are you an operator for life? Do you think, at some point, you’re gonna go to the investor side? What’s your prediction?

Guido: I’m not sure. I think probably in 20 years, I’m hopefully gonna be on the investor side or on the board member side. Or if I’m an operator, I’m an operator in a much larger business. I think I underestimated all the efforts needed to structure at the moment. I think, you know, that takes a lot of time and effort, which is great now, but I’m not sure if in 20 years, I wanna start with a small business, but I’m definitely enjoying the operating side but maybe I would like to focus more on the strategic or important role or investor role in 20 years, for sure. That to me is very appealing too because I’m seeing now a lot of prospective searchers that contact me, it’s very stimulating to talk to other people that wanna do the search fund. Definitely I can see myself in that role, sure.

Jake: Very cool. Last question for you. Searchers around the world are listening to your story and some of them are in countries that have no history of search funds, much like Italy when you started. What would you like to share with these aspiring searchers that you wish you had known when you were weighing the pros and cons of launching a search fund?

In hindsight: advice for aspiring searchers (48:22)

Guido: Well, what I can say to people that want to open a country is that, as I said before, it’s a numbers game. Make sure that you put yourself in your timeline that it could take a lot longer than you expect to be. But, at the same time, be real and be realistic on what you can achieve and give yourself some milestones to check where you’re at. But in the end, as we’ve seen, especially in the last few years, a lot of countries have opened up to search funds so it is possible, so someone has done it. And, you know, when I was searching, I thought I was alone. In the end, there was three of us searching for investors and, in the end, we all closed in the same year. So it is possible. That’s my message. And look at the bigger — yeah, look at the possibilities around you. If it’s something that you wanna pursue, I think it’s time to do it now and, yeah, don’t be afraid to start because I think you’re always gonna regret not trying it. I think I can say that.

Jake: So you were the first to raise. Were you also the first to close? Or a few of you closed around the same time?

Guido: No, I think I was the third to raise but, you know, it’s all within months. 

Jake: Oh really? Okay.

Guido: Yeah, it’s all within months. So we started more or less raising together. Of course, with different investors. And so we all closed in 2017 at some point. Never sure if I’m the second or third, but I was the first search fund acquisition in Italy. Traditional search fund.

Jake: That’s a nice badge to wear.

Guido: Yeah, let’s see. As I said, the acquisition is only the first step. Now, the fun part —

Jake: Exactly.

Guido: — and the most important part is to operate.

Jake: Super important point. Guido, thank you so much for lending us your time. You have an almost casual and easy nature about you but it’s very clear from your story that underneath that is some pretty hard entrepreneurial grit and I think that’s a pretty unique combination and I’m looking forward to watching your story. 

Guido: Thanks a lot for having me, Jake. It was a pleasure.

(outro)

Jake: As Guido says, there is a thin line between passion and obsession. Even so, I want to applaud Guido’s grit throughout this process. His initial attempts to raise capital were unsuccessful but he stuck with it, testing different strategies, different audiences, importantly, and persisting, and after about 150 meetings, he not only opened the door for his own search fund but he also blazed the trail for other searchers to follow him in Italy. He saw the challenges but he let opportunity drive him and I think that’s what really defines an entrepreneur.

Thanks so much for listening to this episode. If you enjoyed it, you can find more at the searchfundblog.com or wherever you listen to podcasts. I’m Jake Nicholson of SMEVentures and you’re listening to The Search Fund Podcast.