Two-time founder grows search fund

Growing up in India with parents who were serial entrepreneurs, Arun Shekar had the opportunity to learn how to build and scale businesses at a young age. He did a lot of the grunt work, which taught him the ins and outs of businesses and built a natural curiosity. He began asking more questions focused on decision making, as he realized that asking questions allowed him to access information otherwise not available. Having a family so inclined towards entrepreneurship also exposed him to the lows that that path has to offer, such as its intensity and volatility.

After studying electronics and communications engineering as an undergraduate student at Tamil Nadu’s PSG College of Technology and computer science as a Masters student at the University of North Carolina at Charlotte, Arun worked at IBM Global Business Services as a management consultant, where he worked on business strategies such as increasing revenue and decreasing cost, creating optimal new products, and creating growth strategies in new markets, an experience that instilled seeds for later endeavors.

After realizing that he wanted a different type of lifestyle, Arun went to and graduated from UC Berkeley’s Haas School of Business, received his MBA, and started his first business: ShopQuick. This predictive analytics platform gave retail stores solutions for inventory management, assortment planning, and back end inventory data. During the beginning stages of this venture, Arun conducted customer interviews to develop a product-market fit. Instead of using internet surveys, a platform that usually asks close-ended surveys that limit responses, he went to places with high concentration of people such as Target, Safeway, and Ikea to ask customers to answer questions. His goal was to ask open-ended questions and collect 350 to 400 customer data points that confirm a solution or pattern.

At first, people did not want to answer him, as they were busy shopping or thought he was trying to sell products. After a week of approaching people, he only received 12 or 13 responses. Arun was rejected countless times and received responses ranging from apologetic to swearing. This was a disheartening and disappointing experience, as Arun just wanted to innocently talk to people. After much reflection, Arun realized that he was letting his disappointment from rejections show in his reactions, thus decreasing his self-confidence. He began thinking that the only way to improve his reactions is to get used to it.

But how can someone get used to rejection?

Practice.

Arun decided to go onto Craigslist the following week and find an opportunity to cold call people to sell insurance. By calling 250 people throughout that week, Arun built thicker skin and became unaffected by rejection. The following week, he went back to asking people to fill his survey out at different stores and accumulated 600 responses. On top of that success, 200 respondents gave their personal email address to stay updated and hear about his product. His experience in cold calling clearly made a remarkable difference in this discovery stage.

The next stage in developing a startup is to onboard talent. At this stage in the company, entrepreneurs are usually limited on cash and thus must sell their vision rather than salary. Arun went to hackathons and technology events and shared his ideas and data points. This is an incredibly difficult process because building something out of nothing with minimal resources requires immense patience and determination. No amount of consulting or observational experience can provide this type of experience. After all, he worked at every position of the company: strategist, CEO, copy maker, and even janitor all in one day. Wearing many different hats taught him to empathize with other people too, a skill common among successful entrepreneurs.

In 2015, Arun embarked on his second venture, Augment Advisory, a product-based consulting startup that served early-stage startups and entrepreneurs. Service-based companies often have low margins and low scalability because they trade time, a finite resource, with money. However, product-based services are more scalable. Thus, Arun’s vision was to build a service-based and product-based consulting firm with low marginal costs and high scalabilities. As Arun worked on this startup, he learned that although it is doable, the service-based model heavily relies on the company’s brand, as the consulting market is often quite saturated. Larger companies such as McKinsey, Bain, and Boston Consulting Group frequently dominate this market because they have a strong brand, so they have a reputation, and deeper pockets, so they can price their services low. It is difficult for new companies to replicate this model. At the end of the day, the venture exposed him to startups that offered new ways to challenge the status quo.

After exiting and working for an e-commerce company that exposed him to logistics and management systems, Arun finally started his most current venture: Redwood Growth Partners, a search fund. Search funds are institutions that raise capital from investors and use that capital to acquire existing businesses. As a result, the investors essentially make private equity investments and the acquiror ends up running the business.

Emerging in a market without prior experience, Arun reached out to other search fund entrepreneurs to understand their experiences. After firmly deciding to pursue this path, he talked to 35 to 40 investors to create a group of investors. Because search funds last about 2 to 2.5 years, he raised enough capital to manage a fund and give him two years to find the company to buy. Arun views search funds as an opportunity to pursue a passion without accruing high risk, as he can find an existing, promising company to manage and grow without having to start from scratch as he had in his two previous ventures. Having the flexibility in which company to buy allows him to pursue new industries he would not have been exposed to otherwise.

Although search funds are relatively uncommon and new types of organizations, there are more now than ever before. They are growing across the country, specifically in the northeast and Midwest. Top business schools such as Harvard, University of Chicago, Northwestern, MIT, Cornell, Stanford, and Berkeley are now teaching courses and spreading awareness about these institutions.

Arun believes aspiring entrepreneurs need to have a certain level of humility, ability to observe and learn, and maturity to embrace failure to start a search fund— especially because there are many steps in the acquisition process and types of due diligence that require patience. There are three main skills that are needed for search funds:

• Search phase— sales, outreach, marketing
• Acquisition— deal making and deal structuring
• Post-operating— being responsible for people, and not just making spreadsheet-based decisions

The two-time founder believes that aspiring entrepreneurs need to be

• Open to failure. The greatest show of strength is not never falling down but being able to stand back up every time we fall down.
• Open to new points of view. A strong sign of intelligence is to have multiple points of views that are possibly even conflicting to concurrently exist in our mind, a skill that is helpful in understanding whether or not to pursue a decision.

Arun believes that entrepreneurs looking to exit their business instead of raising capital should consider search funds because the search fund founder— someone like Arun— would buy the company from the founder using the investors’ money. The founders post-exit are not involved in maintaining operations. If an entrepreneur is looking to create partnerships with professionals with experience in a specific area, industry connections, and access to smart capital, then they should consider approaching venture capital or private equity firms.

Arun’s exposure to entrepreneurship at a young age inspired him to develop humility and persistence. Using a hands-off management style, Arun measures success through results and cares about output metrics. He loves to help people grow their careers because, through that process, he grows too. Arun helps companies grow by serving as a mentor at Berkeley’s Alchemist Accelerator, an initiative that accelerates enterprise-monetizing ventures. Thanks to his humbling upbringing and experiences, Arun strives to find ways to add value to others and implement ideas into reality.