Sumit: I flew to Montreal, I think, on 21st of May and the deal closes on the 23rd, so it’s in two days. But when I got on the plane, I did not know if the deal was going to get through. So, when I went back to New York, my wife, you know, obviously was happy that I closed the deal but then I was like, “We’re moving to Montreal!” This was Mother’s Day. We were at my in-laws’ place in Connecticut so not the best Mother’s Day, as you can imagine.

(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: As a banker in 2017, Sumit Aneja had never heard of a search fund before. But he knew he wanted to buy and run a business of his own. Fast forward four years and he’s now owner and CEO of Voxco Survey Software, which he acquired via a search fund. In this episode, we hear his stories of raising money and of growing a family while buying a business that was not only in an entirely new industry for him but also in a different country as well. 

(interview)

Jake: Sumit, thank you so much for joining me today. I’m really excited to hear your stories. There are prospective searchers all around the world right now trying to decide what they’re gonna do with the next five to ten years of their life and they’re looking to people like you as role models and for advice on their future path. So, thank you so much for taking the time. 

Sumit: Thanks for having me. 

Jake: So let’s back up a little bit. If you can remember back to when you decided to launch a search fund, just tell us quickly how old you were and what you had done professionally up to that point.

Sumit: Yeah, I was 32. I graduated from Yale in 2014 and was in investment banking right after that, Bank of America Merrill Lynch. I was there for about three years and then I went to Houlihan Lokey, a boutique middle market bank in New York for about a year and then I launched my search fund right after that.

Discovering search funds

Jake: Great. So, did you come across the search fund idea at business school or where did you come across it?

Sumit: No, I had no idea during my time at Yale because we did not have the ETA class that A. J. Wasserstein teaches now. It’s an amazing course. But, after graduation, when I was at Houlihan Lokey, I came to know about this idea. Actually, a classmate of mine, Khalil, started a search fund. We knew what he was doing. He was planning to acquire this company and then operate it one at a time but we didn’t know it’s called a search fund. So, when I started digging into acquiring a company rather than starting it from scratch, I actually reached out to a few investors like, “Hey, I’m interested in tech, I’m planning to acquire this startup kind of company.” Some big investors, including Anacapa and Jeff Stevens was like, “We don’t do this stuff. We need like cash flow positive companies with a historical track record.” Then I read more into it. Okay, I was like, okay, what is that thing? I kept digging in. I read the HBS book, that was very good. Then I reached out to A. J. Wasserstein in 2017, who was then teaching the course at Yale. Jason Pananos was teaching it as well, who actually became one of our investors. That’s how I came to know about the search concept.

Entrepreneurial experience

Jake: And how did you come to think that it might be a right fit for you?

Sumit: Yeah, I always wanted to be in the driver’s seat. I saw my uncle start a business after he retired. I helped — I was part of that venture just a little bit but I saw how difficult was it and how thrilling it was. My father is a pure banker all his life, which is what I was doing too. My grandfather, on the other hand, is the cultural businessman and entrepreneur so that’s the path I wanted to go on. I knew after investment banking, at some point in time, I would like to be in the driver’s chair and, based on my skill set, I decided that starting — I had a startup at Yale, it was a luxury shaving startup, but as you can imagine, it required a lot of working capital —

Jake: Luxury shaving?

Sumit: Yes, luxury shaving. Similar to Art of Shaving. 

Jake: Yep.

Sumit: That was acquired for more than a billion dollars a few years after that I was running the startup at Yale. It was a great concept but clearly requires a lot of investment, working capital, and you will have to earn a lot of revenue to make a very small profit. The margins are razor thin on that business. So then I started going back to my technology roots. I’m an electrical engineer. I worked with Tata in their software consulting practice right after. In investment banking, I covered tech, media, and telecom. So then I started looking into tech-enabled services and software businesses to run. And so search fund concept was the best for me to take a company from X to Y than starting it from scratch.

Search funds and the tech industry

Jake: Now, so you’re an engineer, you had a startup that you built from scratch, you were looking in the tech world, more search fund deals are done outside of the tech world than in the tech world. Did that discourage you at all? 

Sumit: You know, I was lucky. It is becoming more of a trend now than it was several years ago when I did my deal. We were lucky enough to find a deal at a reasonable multiple, search fund kind of multiple. Now, the multiples in the tech space are north of four times revenue, more EBITDA, so definitely outside of clearly searcher space. So, I will say I just got lucky and found the right deal. It was an arbitrage at some time because my — I was based out of New York and I found the deal in Montreal. There was no way I would have found this exact deal in the U.S. at the same price that we did. So there was some arbitrage that we had gotten hold of.

Jake: Fantastic. And where are you in the process today? How far down the line and what stage are you at?

Sumit: It has been a couple of years now. We acquired the company in May 2019 so it’s been more than two years and it’s been a great journey so far. 

Jake: Okay. Where did you base your search? And so you bought in Toronto, you based your search in New York maybe?

Sumit: Yeah, so we bought in Montreal and my search will be —

Jake: Sorry, Montreal.

Sumit: Yeah, based in Connecticut. Stanford, Connecticut.

Jake: Got it.

Sumit: Yeah.

Jake: Where do you see yourself 20 years from now?

Sumit: I think it’s a great question. I don’t know. Do I want to be on the investor side or operator side? I’m enjoying the journey so far. I definitely know for the next five, ten years, I can see myself in the operator chair growing the company. We are looking at some acquisitions right now so that’s the horizon I have in my mind. Beyond that, I honestly don’t know. Both are exciting.

Jake: Fair answer. Fair answer.

(break)

Ready to launch: raising search capital 

Jake: Prospective searchers around the world are analyzing the different steps of this model and trying to figure out whether they have the skill set, intuition, grit to conquer each of those steps. And, naturally, a lot of them are very concerned about raising the capital. Most of them have never raised capital before for an acquisition or their own business. Most of them just have never raised capital before. And so that is fairly daunting, both the search capital and the acquisition capital, where are they going to go find $10, $15 million if the company requires that. You had a pretty interesting experience with the capital raise process, as I understand it. Tell us about the process of raising the search capital first and how that went.

Sumit: Yeah, it went great. I was coming from investment banking. I already had a couple of commitments before I started the search full time so that gave me the confidence to go do it full time. I reached out to several investors, heard encouraging feedback, and a couple of them solid commitments and a couple of them, you know, “We’ll definitely back you. Once you’re back in the market, send us your PPM,” so it was very encouraging. What helped me a lot is that at Houlihan Lokey, I started coverage of the corporate training sector, which meant doing a lot of business development and reaching out to the entrepreneurs, having those meetings. That, I think, was a very good fit in the first phase of a search in identifying a company and, obviously, coming from investment banking, diligence was what we were doing on many, many deals so that came naturally to me. Really, convincing somebody that I will be able to find a deal and do a deal was the easy part. Obviously, I didn’t have the operator background like full time, but what helped is the entrepreneurial experience I had with my uncle when he was starting the company. Also my startup experience at Yale, that came in pretty handy. And I was advising many other startups as well that were in several different stages. That gave me a lot of credibility as well. So, the search capital raise was great. I was fortunate. I had oversubscription by about 50 percent at that time.

Jake: That’s fantastic. Let’s sit on that point for a minute. So you hadn’t ever operated a midsize business before.

Sumit: No. 

Jake: But investors still gave you a bunch of money to go look for one to buy and operate yourself.

Sumit: Yeah. Most of the searchers, right? That’s the whole search fund concept I was fascinated by, that you were putting the first-time operators in the chair and you’re trusting them because you think they are smart and they will figure out things on the fly, which usually they do and we have seen many, many great outcomes in the space, yeah.

Jake: And how did you feel when you were 50 percent oversubscribed?

Sumit: It was great, you know? You’re over the moon and then you, in your mind, think, “Okay, I’ve done this,” so the next, you know, acquisition capital raise is going to be easy as well. That was a mistake. Absolutely not.

(break)

Jake: I wanna get to that. I’m eager to get to that. How did you decide, if you’re 50 percent oversubscribed, how did you decide which investors to let in and which to boot out?

Sumit: To be honest, I did not do a very good job at analyzing who I should let in and out. It was a lot more what I felt the right fit at the time and some of it was based on the timing as the commitments came in. So, I was not like that thorough as people are into building a book and then reaching out to people. I was just, you know, it was a great feeling at that time. Although I did keep in touch with the folks that I was not able to get into the fund right away so we kept a good relationship, I kept sending them updates and many of them I talked to during the fundraising process for the other deals as well.

Jake: All right, so you searched, how long did you search for?

Sumit: I started my search beginning of 2018, I closed the deal in May 2019 so one year, five months —

Jake: Okay.

Sumit: — total, yeah.

Jake: So, you’ve been searching for, presumably, it took you about a year to find it, maybe four or five months to close.

Sumit: No, no. It took me nine months to close the deal —

Jake: All right.

Sumit: — and, basically, other eight months to find it. I signed three LOIs. This was the second LOI that I signed.

Jake: Yeah.

Sumit: And, as you know, typically, one out of three close and this was the one that closed actually.

Competition and the search ecosystem: raising acquisition capital 

Jake: All right, so you find a deal, you’re pushing it to closing, and it’s time to go ask investors for capital. You were fully subscribed, you were oversubscribed for your search phase so, naturally, that’s not gonna be an issue raising the acquisition capital, right?

Sumit: Yeah, that’s what I thought. But it didn’t go that way, though. The way it really went is there was a competing deal going on in my sector, in the software space, that started out three months ago. And many of our big investors already committed to the deal. Fair enough. I mean, you know, it’s a good deal and it started three months ago, they’re not gonna just wait for me to bring another deal. So, that doesn’t happen in the search space too much as you would know more than I do. It was a very weird situation. But, you know, I knew this was the right deal for me so I went outside the search group, I brought in a group of investors that were not in my original search. In fact, majority of the equity came from outside of the search group, including two of the three board members that we have right now.

Jake: And was there any bitterness from the search phase investors? Was there any pushback on that?

Sumit: No, I mean, you know, it’d be guys, all of us know what is right for the business and it wasn’t easy, I will tell you that, right? Especially the deal was a cross-border deal so you can imagine the legal, tax, and accounting issues accompany and the exchange rate issues along with that. It is — yeah, I mean, it wasn’t easy because there’s a clause, you will know, in the LP agreement that if you’re bringing in most of the capital from outside the group, you have to give them a chance to be bought out and, at that time, we didn’t have enough capital to buy people out. It created some friction, I wouldn’t lie, but we were lucky within a couple of months of searching, a couple of months of, you know, acquisition, we were able to bring in a nice investor and, you know, who wrote a nice check, it was like, “You know what, I’ll buy all of these guys out, don’t worry about it.”

Jake: So that investor that you found that did not participate in the search round ended up making up the majority of your cap table post acquisition.

Sumit: Not just one but there was a group of investors that made up majority of the capital, yeah.

Jake: And how did you find them? 

Sumit: Network. Through my network, network of our lawyers and investors, and Peter Schober is one of our investor who introduced me to our board member, Craig Jones, I remember that. Mario Nigro is our lawyer, he introduced me to our board member, Glen Silvestri. And Glen brought in a lot of investors too and Craig also introduced me to a lot of investors. These guys that have huge networks. Operand is one of our biggest investors as well. They were in the search group and they are on the board as well.

Jake: Okay, so for our audience, all those names that you just mentioned, are they serial search fund investors, they’re in the search fund ecosystem, or did you have to go outside the search fund ecosystem for capital?

Sumit: So Operand, all of these guys are in the search fund ecosystem very much. Glen recently raised a fund a couple years ago. So the timing was perfect. Voxco is first deal that he did with the fund. So I think it’s a $40 million fund, if I’m not mistaken, $35 to $40 million fund in Canada, the biggest and the first institutional search fund capital in Canada. And Craig has been doing it for many, many years. He was in venture capital before that and he’s a serial search fund entrepreneur. And Operand, we all know, they only do search investments, yeah.

Moving to montreal: the glamorous life of closing a search

Jake: So nine months from identifying the deal to actually closing it, you had the surprise experience of having to make up the majority of your cap table from outside your search investor group. 

Sumit: Yeah.

Jake: Stressful, no?

Sumit: Yeah. It was stressful. 100 percent.

Jake: And then you’re juggling the seller — was it one seller or multiple sellers?

Sumit: Two —

Jake: Two sellers. Consultants, attorneys, accountants. You’ve never done this before. 

Sumit: Yeah. 

Jake: How did you make it through alive?

Sumit: It was a very stressful time, I wouldn’t lie. Support from the family was very important, I’ll give you one. I still clearly remember, even during the final stages of the deal, there were many pending issues on the table, including seller note, how that should be structured. I flew to Montreal, I think, 21st of May and the deal closes in 23rd, so it’s in two days. But when I got on the plane, I did not know if the deal was going to get through. There were still many pending issues. I was like full on my email throughout the flight, New York to Montreal, which is not a big fight, it’s one hour, hour and a half. So when I went back to New York, my wife obviously was happy that I’ve closed the deal but then I was like, you know, “We’re moving to Montreal,” right? This was on Mother’s Day —

Jake: Surprise.

Sumit: Surprise, right? She didn’t know that I went to Montreal because I wasn’t 100 percent sure.

Jake: Right. 

Sumit: So this was Mother’s Day. We were at my in-laws’ place in Connecticut, and I was like — we announced that we are moving to Montreal, so not the best Mother’s Day, as you can imagine. Yeah, I got a lot of pushback for that.

Jake: I’m sure you did. Did you have kids at the time?

Sumit: Yeah. So my son at that time was about a year old, we did.

Jake: You missed a story about paternity leave?

Sumit: Yeah. So that was another funny story. I clearly remember when my wife was in the hospital, she was about to deliver the baby. She was on epidural and I was sitting in the room on my iPad and doing diligence and looking at the documentation and conducting calls with the investors from the waiting room, from outside the hospital. She was on epidural, right? She didn’t remember, she didn’t mind, I was running these calls.

Jake: Yeah.

Sumit: So my paternity leave was a weekend and one week. That was all in all my paternity leave.

Jake: Luxurious.

Sumit: My wife, obviously, was not a big fan of that, right? We were lucky I had my parents with us for about a month, that was a big support, and my wife’s family is also in the area so that also helped a lot. So we got through it but I definitely want to tell everyone not the easiest time. It was very, very tough.

(break)

Jake: At some point, I would love to hear about post acquisition but thank you for sharing those stories. As you know, from your side of the deal, that’s just the beginning. Getting the deal done is just the beginning. 

Sumit: Yeah.

Jake: Actually running the company and creating the value, that’s the bulk of the journey. But from other side of the deal, from the prospective searchers’ view, that’s the first hurdle that they need to cross. Well, the first hurdle is raising the capital and then it’s getting the deal done.

Sumit: Yeah.

Jake: It’s hard to see past those two. Great to hear your account of those stages of the cycle. At some point, I might ask you back to talk about what happened after. So you’re a couple years post transaction. You’re in Montreal?

Sumit: Yes, Montreal.

Jake: Is your wife happy in Montreal?

Sumit: Yeah, she actually loves it. She was born in Paris, native French speaker, so much better position than me, I still haven’t learned French because, you know, COVID hit and all my French roadmap went out of the window. Actually, she really enjoys it, live not too far from downtown, it’s a nice place. My son loves it, obviously. So she likes it a lot.

Jake: Worth it?

Sumit: 100 percent. 100 percent.

Tips for searching in an emerging search market

Jake: So to the searchers in Asia, Australia, Africa, Eastern Europe, especially these new markets where they don’t have a whole lot of role models to look at, in addition to prospective searchers in the more established market, what advice, with the benefit of 20/20 hindsight, would you give your former self when you were thinking of launching this search? And by extension, what advice would you give to these prospective searchers as they try to make that decision?

(break)

Sumit: It has to feel right to you. If somebody’s doing it for an easy lifestyle or glamour, those are clearly the wrong reasons to do it, I can tell you this much. It’s a very tough journey. It is very fulfilling. You know, running a company is hard and getting to run a company at such an early age is a privilege and it should be treated as such, right? But it comes with a lot of responsibility so you have to be ready for it. And most of the searchers do not have the operational background so you also have to learn to be humble, right? And we’re all coming from great backgrounds, top business school, top GMAT scores, investment banking, private equity consulting, top of the top, then you’re like, “Okay, now I’m gonna go into a lower middle market company,” where people don’t care about any of that at all. Actually, it’s treated as a negative. So you have to throw yourself down and you have to make sure that you can, because some people cannot. They’re gonna keep dropping the McKinsey, Bain, Goldman, BFA name or the Yale, Stanford, Harvard, not fit. Cannot do it, right?

Jake: And in many cases, searchers are buying in an industry that they don’t have a whole lot of experience in and they’re managing employees who have a lot more experience than they do, especially in that industry. So, point well taken. Very well said, Sumit. Thank you so much. You’re welcome back anytime. If there’s anything I can do for you or the searcher community can do for you, please let us know. Give us a quick pitch of Voxco.

Sumit: Yeah, we are a multimodal survey software platform. We have four major products. Voxco Online that competes with the likes of Qualtrics and Medallia. The second is telephone data collection so polling when the government is collecting data for census and other social research initiatives, that is another one.  Third one is face-to-face data collection so imagine mystery shopping or collecting data in places where you do not have internet access and collecting data on the phone or iPad that you can do on our software. The fourth one is IVR so let’s say if a financial institution or a healthcare institution wants to send out millions of calls to collect satisfaction data, be it customer’s experience or employee experience, they can do it with IVR. And then we have analytics capabilities to go along with all of these four models. Yeah, so we have three major markets. One is enterprise direct. So we have clients like Siemens, Mayo Clinic, Walmart, PayPal, etc. The second is market research so Nielsen, GfK, Ipsos kind of corporations who are doing research on behalf of the corporations. And third one is social research where you have government agencies, federal subcontractors, NORC University of Chicago, University of Michigan, so those are the companies who are in Voxco today.

Jake: Fantastic, exciting. Are all of your customers big blue chip companies or would search fund companies potentially be customers of yours as well?

Sumit: If you have customers, employees, or product, you can be a Voxco client, right?

Jake: Okay, I love it. There you go. All right, let’s end there. Thank you so much, Sumit. Really good talking to you.

Sumit: My pleasure. Thank you so much for the invitation, Jake. Absolutely happy to answer any other questions you guys might have. Good luck to the searchers in these emerging search markets but I would like to say Canada was like that too I would say a couple years ago, if you look back, and obviously U.S. is the most advanced and mature from that perspective so it’s great to take the lessons from these countries, which are a few years ahead, but I have no doubt in my mind that search is going to increase a lot in all parts of the world. I know many searchers in London and rest of Europe that are coming up very, very actively. I wish the same in the APAC and the Middle East markets as well. 

Jake: Again, well said. Thanks a lot.

Sumit: Appreciate it. Have a great day.

(outro)

Jake: I wanna take a quick moment to thank Sumit for his time and patience on this episode. This was the first interview I did for this podcast and, as you might be able to tell, we’re still learning. Luckily, Sumit is a true entrepreneur willing to experiment in the name of innovation and progress. So, Sumit, if you’re listening, thank you from the bottom of my heart and from searchers everywhere.

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.