We sat down with NCA Co-CEOs and Co-Founders Elena Trukhina & Christian Malek to discuss the value of search funds, NCA’s growth, and advantages of the company’s Entrepreneurship Through Acquisition (ETA) program. Discover what makes NCA unique and get to know our founders by diving into the Q&A below:
Q: Elena, Christian, can you tell us about some of the main highlights of 2020 for NCA?
Christian: For NCA, 2019 was about testing and shaping our ETA concept, designing and putting together the processes, and hiring the team. 2020 was essentially our first full year of operations when we had new co-investors join and launched our first search funds.
Elena: We had around 3,000 applications to our ETA program in 2020. We ran three assessment centers in Europe and kicked off the first assessment center in the USA, which was quite a significant and important step for our program. I would say 2020 was a very important year for us in all aspects.
Q: Christian, you invested in numerous search funds before founding NCA; Can you explain why Search Funds are such a great asset class to invest in?
Christian: One of the great things about search funds is that they are all about people. So instead of investing in a company and then trying to pinpoint who will manage it, you start from the very beginning by finding the right person. You have many interactions with that person over the course of the search process, which takes up to two years, so you get to know them very well. Compare that to a traditional private equity fund, where investors provide capital yet have absolutely no say in how the private equity is used. Our searchers also know that this is a once in a lifetime opportunity for them, and that the capital is not committed outright so they have to convince investors that the deal is good. That puts a healthy amount of pressure on them to do their search and gives them great incentive to deliver. I think that’s one very important element of what makes search funds such a great asset class to invest in. Interests are aligned across the board.
Another important aspect to consider is that our searchers have been thoroughly vetted by NCA and investors. Investors can rely on the fact that we are also co-investing. That means they can trust us to pick the right people, because not every investor has the time to speak with every searcher and regularly monitor them. That’s why what we’re doing is so beneficial for larger investors who really want to have exposure to this asset class; they can rely on a trusted process and have access to an exceptional group of entrepreneurs when it comes to the investments. Our program offers an element of increased efficiency and a solid alignment of interests that simply makes sense for our co-investors.
Q: Elena, if you could tell potential investors the top 3 reasons why they should choose to co-invest with NCA, what would they be?
Elena: The first reason to co-invest with NCA that I would highlight is the proprietary deal flow generated through our program. Many investors would like to invest into private equity directly, however generating deal flow is not that easy. Our program is a perfect vehicle for generating proprietary deal flow. NCA’s program is built around a future CEO who personally scouts the market within the area of their expertise for the ideal company they would like to manage as CEO, so you can access very interesting off-market, proprietary deals. Our ETA program is actively onboarding many talented individuals, all with different industry backgrounds and who are searching in different markets, so NCA’s program is a really powerful machine for generating deal flow that offers co-investors an opportunity to build a large and diversified portfolio.
Secondly, this asset class has amazing historical records of performance. On average search funds generate IRR of 33.7%, which is impressive by all standards. One of the main reasons behind this exceptional performance is the strong alignment of interests. If a searcher finds a great company, at the right valuation, and creates IRR at a level of around 35%, they can get up to 20% of the shares of the acquired company, which is a great upside for the searcher that’s highly linked to performance. That alignment of interests yields very impressive results.
Last but not least, we also invest in every transaction ourselves alongside our other co-investors, who are not charged any fees when they co-invest. Our program embodies the true spirit of co-investment and thrives through a powerful alignment of interests.
Q: Christian, can you explain 3 ways that NCA’s program differs from a traditional search fund from an investor’s perspective?
Christian: When you choose to co-invest with NCA, the first thing to consider is that our searchers have gone through an extremely structured, disciplined and rigorous selection process, unlike other searchers trying to raise a search fund on their own. Very few people qualify for our program. Secondly, our searchers tend to be entrepreneurs with more professional and managerial know-how, who often have vast experience in very particular industries. That’s reflected in their connections and expertise, which grow exponentially with age and experience. Thirdly, in our program the searchers have to buy a unit for themselves, so they actively participate in the search capital, have the same incentives and objectives, and are personally invested.
And lastly, I’d also say that NCA’s program is different from a traditional search fund because our searchers are backed by a team of experts. You could compare it to completing an MBA program at a top business school versus completing an MBA program on your own at home. It’s technically the same thing, but your work and the results are going to be so much better when you are in a program. The NCA team of experts and the support network that we offer not only help our searchers find a company, but also empower them to find one as quickly as possible, while also ensuring value creation upon acquisition. We are building extensive support functions for our searchers, and since we are launching many searchers simultaneously, we are able to share the associated costs across them all and guarantee that all of them have access to better resources. At the end of the day, we are aiming for every single one of our searchers to find a company.
Q: 2021 started with launching three NCA Entrepreneurs; can you tell us more about what else we can expect this year?
Elena: 2021 will be about expansion and new markets for us. We will be launching search funds across many markets in Europe and will be expanding our program in the US. That expansion is very focused on attracting top talent to our ETA program and we want to tap into both female and male talent pools equally, in the hopes that our program will additionally encourage female entrepreneurship.
We are also currently amassing a larger group of investors that are co-investing together with us. The majority of these investors are Single Family Offices and the co-investment ambiance amongst our program members is truly amazing. We certainly want to maintain that going forward while also welcoming new co-investors to our program, especially in the new markets where we will be launching our next searchers. It is important for us and for all other co-investors to have a local footprint in tandem with the local investors who will be joining our program.
Our team will also be growing so we can support more searchers. We are building out several work streams within our organization to ensure all our searchers buy the right company and buy it fast, such as data analytics center, M&A center, legal support, talent acquisition, and talent management teams. We are also investing in educational programs for our searchers. In other words, it is a work in progress, but all our expansion plans will be fully supported by growing our team as we continue to improve our operational practices across all aspects of our business.
Want to know more? Visit our article database or LinkedIn for more insights and stay tuned to hear more from our team as we continue to delve into the world of search funds and Entrepreneurship Through Acquisition.
Novastone Capital Advisors Gmbh. (NCA) is a Swiss company, founded by a consortium of Single Family Offices, running an Entrepreneurship Through Acquisition program. Our ETA program is a highly specialized process that connects investors with talented entrepreneurs who are looking to grow a privately held company. Through this we support business owners in addressing succession challenges. We focus on mutual benefit, profit and growth for all of our stakeholders.