🔍 Issue #81: A Unique Path To Owning A Business
Diego Cuenca talks about what makes search funds different from typical startups and how he acquired Ticketech and led the company to an exit
💬 Welcome to issue #81 of Between the Lines
Good morning & happy Thursday. Once an obscure asset class, search funds have risen dramatically over the past years and have been generating attractive returns.
This week, search fund founder and Claremont entrepreneur Diego Cuenca (CMC ‘07) shares a different strategy for owning and managing a business without having to found the company yourself, his process for evaluating companies to acquire, and how he overcame unexpected challenges after purchasing TicketTech… it’s a Claremont world out there. 👇
P.S. Don’t worry if you don’t see BTL in your inbox next week — we’ll be taking a quick break from our weekly programming!
~ Josh & Miles
👤 Community Spotlight: Diego Cuenca & Ticketech
Diego has spent his life working with family businesses and privately-owned companies. Prior to starting his own search fund Kata Capital and his work at Ticketech, he worked in different operations, sales, and investment roles at ALPS Advisory in Hong Kong and Bernstein in San Francisco. Diego received his BA in Economics-Accounting from CMC and an MBA from Columbia Business School. He’s also a retired MMA competitor and avid martial artist, and he currently resides with his wife and two boys in Great Neck, Long Island, NY.
After receiving your MBA from Columbia, you then launched a search fund to acquire TicketTech. Can you give our readers a quick download on search funds and why you think they’ve grown in popularity as of late?
A search fund is a vehicle that allows an entrepreneur a unique path to owning and managing a business without having to found the company yourself. In a traditional search fund model, you would:
First, raise initial funding to cover things like travel and salaries as you go about looking for a target acquisition.
Second, you spend time in deep research, searching for a specific business you want to target and acquire.
Third, if you successfully find a target company, you then raise additional capital for the acquisition.
Finally, after acquiring the target company, you then operate and run that business as CEO for an undefined amount of time until a potential exit.
There are many models of search funds available to entrepreneurs today, as well as sources of capital, but I believe there are really three reasons why the search fund model is more popular now than it has been in the past:
Several generations of search fund entrepreneurs have now had significant financial outcomes and attractive financial returns. According to the 2022 Stanford Search Study, returns from all search investments since 1986 have aggregate pre-tax returns of 35.3% IRR and 5.2x ROI.
Over recent years, search fund models have been shown to have a greater chance of success than starting your own business from scratch or going the more traditional startup route. Plus, the ideal acquisition targets for search funds typically have a long history of recurring revenues and profitability, making it easier to run and less risky once you’re in the CEO role.
Available capital and target investors continue to grow as baby boomers retire and more capital enters the space due to the attractiveness of the asset class.
What initially attracted you to pursue search funds rather than something else in startups or venture capital?
I always wanted to manage a business and had many entrepreneurial influences growing up that pushed me toward that direction. Both of my parents had always worked in their family businesses, and my two oldest brothers started companies while I was still in elementary school. My grandfather was also one of the pioneers in Philippine infrastructure, and I grew up hearing stories of how he built his company.
Prior to business school, I had also worked in financial services for about a decade and had just quit martial arts competitions — which were a big part of my life. It was time for a new challenge. I knew it was time to manage something on my own that could scale.
I started simultaneously exploring the startup path and search funds — taking internships and coursework around both, but ultimately, I felt a search fund was the better path for me post-MBA. I knew it would allow me to mitigate some risk and scale a business that already had reached product-market fit. That said, today, I am still excited about growing companies — search fund, startup, PE-backed, or otherwise. I wouldn't rule out starting another business in the future. 👇
💼 Who’s Hiring?: Kobold Metals
Claremont grad Kurt House (CMC ‘01) is the co-founder and CEO of Kobold Metals – a rapidly growing start-up using AI to enable the transition to electrification and help solve climate change. Kobold is backed by Bill Gates' Breakthrough Energy Ventures, a16z, Bond Capital, Sam Altman, and others. Just recently, a16z included Kobold Metals in their American Dynamism 50 list, which spotlights tech companies that are kickstarting American renewal:
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🗣️ Conversations on the Interwebz:
This week’s Claremont financings 💸
Congratulations to NOCD, who just closed a $34M Series B round led by Cigna Ventures and 7wire Ventures. Claremont entrepreneur Stephen Smith (PO ‘17) is the co-founder and CEO of NOCD – the #1 telehealth provider for the treatment of obsessive-compulsive disorder (OCD).
Congratulations to Claremont graduate Sam Corcos (CMC ‘07) and Levels on their recent $7M Series A extension. Sam is the co-founder and CEO of Levels – an a16z-backed health tech company that provides real-time feedback on how diet and lifestyle choices impact your metabolic health by leveraging biosensors like continuous glucose monitors.
Everything else you need to know💡
Claremont entrepreneur Israel Ben-Tzur (CGU) is the founder of StePac – a recognized technology leader in the boutique produce market. This past week, StePac was acquired by printing and manufacturing company PPC Flexible Packaging to bring their mutual customers a much more diverse selection of options.
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🍽️ BTL Snacks:
🥇 Making History Happen For Latin America….. Forbes Ecuador just featured BuenTrip Ventures for becoming the country’s first institutional VC fund. With 23 startups and 46 founders in their Fund 1, the firm now aims to invest $15M in over 30-early stage B2B software startups in Latin America that enable rapid digital transformation. Claremont grad Fernando Rivera (PO ‘93) is the co-founder and Managing Partner of BeunTrip Ventures.
🖼️ A Laser-focused Work Of Art….. With generative AI finally bearing results, big hardware makers are also jumping on the AI image generation band wagon. Laser printer manufacturer Glowforge, co-founded by Claremont grad Dan Shapiro (HMC ‘97), announced their new Magic Canvas feature, which lets even the least artistic of us create designs ranging from heroic portraits and pencil drawings to cartoonish characters. Glowforge can etch and charge wood, acrylic, fabric and all manner of other materials.
B. Los Angeles. We’ve tracked over 250 Claremont-founded startups based in the LA area.
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