Diving Into Search Funds: An Emerging Investment Vehicle That Could Deliver Higher Returns in Africa with Ibrahim Abdel Rahim

[00:00:00] You're listening to the Unlocking Africa podcast. Terser Adamu Welcome to the Unlocking Africa podcast where we find amazing people who are doing amazing things to unlock Africa's economic potential. Today we have Ibrahim Abdel Rahim, who is managing partner

[00:01:11] at Moonbase Capital, who invests in SMEs through search funds which is an innovative new asset class that combines the stability of private equity with the agility of venture capital. Welcome, welcome, welcome to the podcast Ibrahim, how are you?

[00:01:30] Doing great, doing great, very excited to be on your podcast. Thanks for having me. Fantastic. So how's your day been so far? Been great. Barcelona, the weather is nice today, so it's been a good day.

[00:01:40] Brilliant. Before we get started, tell us a bit more about Ibrahim Abdel Rahim. So I am Egyptian. I was born and raised in Cairo in Egypt. My family has a family business, so I grew up excited to work in an Egyptian family business. We produce flavors and fragrances

[00:02:01] so ingredients which we export to a number of different African and Middle Eastern countries. So I joined the family business as a young kid and then I left after four years to learn

[00:02:13] business properly. So I did my MBA at INSEAD in France and then after that joined McKinsey, the business consulting firm McKinsey and Company joined them for four years. I was part of the Milano office but worked a lot in Egypt, in the Middle East and in different countries.

[00:02:30] And then eventually went back to the family business, worked there for four years growing it and then sold it to a German multinational called Döla and stayed a CEO of Döla

[00:02:41] Egypt for another six years. So after 10 years in total of running a business in Egypt, we exited the business and then I went did another master's degree at Stanford in California. This was 2019, 2020 and that is where I learned about search funds because Stanford is the place

[00:02:59] where search funds were born back in the 80s. I was really hooked because search funds is a way to invest in SMEs, small and medium-sized companies and since this is the type of

[00:03:10] asset class I was working in my whole life and my father's family business was in this size bracket, I felt this is the place where I want to grow and invest and that's what I do now. I invest in SMEs

[00:03:22] through this thing called search funds. Fantastic. So you're giving us great insight into your personal and professional life in terms of qualifications, working as a consultant and also running the family business in Egypt. So I was wondering if you could share more about your

[00:03:41] early career managing your family business in Egypt, what valuable lessons do you think you learned during that time? I mean the one thing which stuck with me was the fact that people

[00:03:55] in Egypt are really good and very talented if you put them in the right atmosphere. So usually when you talk about human aspect or the human resources or the people in different African countries, you always get skeptical people from Europe are always skeptical saying,

[00:04:12] ah it's not so easy to work in Egypt because maybe the people are not as educated or it's harder to manage them because of different reasons and you always have this stigma. What I learned

[00:04:22] is actually although I see it in many organizations in Africa or in Egypt specifically where they're not that well run, not that well managed but then doing it myself and applying European management systems what I've seen is that people in either direction and if you are able to

[00:04:39] do the right atmosphere where they're excited they become way better than even what I've seen in other countries. I mean to survive in Egypt or I guess in many other African countries you need to be quite street smart. It's hard. It's harder than surviving in Europe for sure.

[00:04:53] So by default the people have some qualities that maybe Europeans don't have but unless they're in the right atmosphere and they're excited these qualities could be hard to manage. That's why

[00:05:04] many people say yeah it's maybe hard to manage your business in Egypt. What I've seen is it's true but if you are the right leader and if the leadership is good the people are really good

[00:05:13] and what happens, what ends up happening is you can perform even better than what you would do in Europe because of the power they have. So this for me was the biggest learning from my

[00:05:22] 15 years working in SMEs in Egypt. Brilliant so I guess the main point there is applying the right management systems in Africa within a business does enable it to grow or increase the chances of it growing and becoming sustainable which is something you manage to achieve through your

[00:05:39] family business. So you took over the family business, you grew to a considerable size and then sold it to a German company. Yes. Were there specific challenges or opportunities that you saw that led you to the decision of selling and exiting the company? So in the business we

[00:05:58] were in is juice concentrates. So in juice concentrates what you do is you buy fruits and you squeeze these fruits into a pulp or a juice and then you sell this juice to

[00:06:09] manufacturers of the drinks and nectar and the people who do the finished goods. In our business you need a lot of investments because basically you buy let's say mango so one of the fruits we did

[00:06:20] was mangoes we used to buy during August when the season of mangoes is out at speak we used to buy a lot of mangoes and we have to pay it but then you sell your juice over the whole

[00:06:30] year because people drink mango juice the whole year they don't only drink it in August which means that by default we always had to have a very big loan from the banks. Now one of the

[00:06:41] things that makes working in Africa not so easy is sometimes the banking system is not as forgiving as banks in Europe which meant it's very expensive to get the loans they make you sign very tough papers so having working with and growing depending on the banks was not

[00:06:57] the best so selling to a European multinational was a good idea because you can grow when they put the money themselves as a very you know cash rich company and we were able to grow much

[00:07:08] faster and much bigger given the liquidity of this mother company plus also the name of a German multinational makes it easier to sell especially in Africa and in the Middle East and in the Mediterranean because a German brand is so powerful and unfortunately another thing about

[00:07:26] at least Egypt is we really like these big European brands we trust them more than we actually trust our own brands so this also is another reason why selling to a German company made sense. Interesting, interesting earlier you also mentioned in terms of prior to working

[00:07:43] with a family business you spend time in consulting so what key insights or skills did you gain from that part of your professional career that you find are valuable in your current role as a managing partner at Moonbase Capital? Consulting is a huge learning opportunity in

[00:08:02] general because every few months you are in a company solving a new issue which is usually something tough because they would not hire the next turn like consultant unless it is something worth really solving for so you the learning is so steep you're working especially

[00:08:18] at McKinsey you work with CEOs and you work with a board to do a strategy or to merge to companies or to do a regular organization so I learned so much about business in general from my

[00:08:30] consulting years which now I'm applying is when I invest in an SME and the way we do it at Moonbase is we work a lot with the searchers who are looking for a company to buy and then they

[00:08:41] become CEOs and we help them and advise them and we're sit on the board so all these learnings as a consultant helps me not only in identifying a problem but also in being able to find the

[00:08:51] solution and being able to communicate it in a way that the team would buy into and people would move into the direction so no consulting I mean in general is a very good learning for anyone

[00:09:02] who wants to know business. Fantastic so you've taken your learnings as a consultant to what you do at Moonbase Capital so we know that Moonbase Capital specializes on search funds so could you explain what search funds are and how you first came across this innovative asset class while

[00:09:21] she were in Silicon Valley? Search funds is a concept that was started in at Stanford in the mid-80s by a professor called Irv Kruzbeck and he found that many of his students in the MBA

[00:09:35] students would like to take on an entrepreneurial role but don't want to do a startup they don't have an idea and they don't like the startup process so they worked with Irv to

[00:09:47] work on buying looking for an SME a small company that they can buy and manage so and that's what they started so mid-80s a few of his students he helped them fund from a number of investors

[00:09:58] money for two years of searching for a company so first step we work with these entrepreneurs and we fund for them the search phase and we don't do it as Moonbase on our own we work

[00:10:09] with a lot of other investors that co-invest in helping this entrepreneur in spending two years looking through a database starting with a database then sending emails to thousands of SMEs and then sitting with these SME owners and convincing them to sell their businesses and the businesses we

[00:10:26] invest in or this searcher looks for have very specific criteria which are size of EBITDA of one to five million euros so you're talking about an SME it's small company you talk about it's usually in the either services or the B2B realm because we look for

[00:10:44] companies that don't need capex to grow so you don't need to keep fueling it with more and more money in order to grow we look for companies that have a recurring revenue so some sort of

[00:10:53] contracts so it's a very safe investment and usually these companies are companies where you had a founder or father or a mother or a father and mother who were working together for 30 years building this company so we're talking not about startups we're talking about

[00:11:08] regular mom and pop typical SMEs that exist all over the world I mean you talk about here in Europe more than 50% of the GDP is made up of SMEs yes so it's a huge amount of the company but we

[00:11:21] look for companies that are very safe that have been very successful for many years so then the risk is very low and then once the searcher or the entrepreneur locates and finds this

[00:11:31] company next step would be to decide if we want to invest in this company or not so we work in the two years with this entrepreneur and then after they find the company we decide if we don't

[00:11:40] want to invest we leave as moonbase and someone else takes our place but if we decide to invest usually we invest around half a million to one million euros and we take maybe anywhere between

[00:11:50] five and 10 15% of the company in many cases we take a board seat and then the entrepreneur becomes the CEO of this SME the banks here in Europe usually put around 60% of

[00:12:07] the value of the company and we as investors put the rest so we end up during the first five years using all the cash flow to pay the banks back their money so after five years of running this

[00:12:21] company successfully you have a debt-free company that we bought for a good price and the bank paid a lot of it and now you are exiting a bigger company with no debt and usually the returns that Stanford has been documenting for the past 30 years has been around 30% return

[00:12:42] IRR for the search months so it's a huge IRR which means basically annual return on average so it's a huge return higher than the average for venture capital higher than the average for private equity for the stock market so it's a very interesting asset class where you have

[00:12:59] a very high return and yet the risk is not as high as you see in venture capital so it's yeah and it's growing really big in in Europe it's already quite established in the US and it's

[00:13:11] growing also in Africa I mean in Egypt there are two searches now who are searching for companies and then a number of other African countries you have people looking for SMEs to buy and

[00:13:21] then Africa it's very relevant because we are countries that has a lot of SMEs yes I mean maybe one to five million euros we don't really consider it as an SME and in Africa it's quite big a five

[00:13:31] million euro retreat. EBITDA in Egypt is a big company but still you have a lot of these companies which have a lot of potential and you have family members who grew this business they're

[00:13:44] well off because the business is successful but their kids don't want to work in this business anymore so you have a vacuum and you have a case where these parents or these founders want to sell

[00:13:56] to a young entrepreneur who would like to still keep the business alive and grow it and take it to the next level so it's very exciting very exciting you work with these guys I mean I always say it

[00:14:04] has the best of venture capital and private equity because you have from the venture capital world you have two things which really define venture capital you have the fact that you work with entrepreneurs which is really the essence of a venture capital deal so you have the entrepreneurs

[00:14:21] but in our case they don't start they go and buy a company and you have because it's small tickets and you only buy five to ten percent of the company you end up having a very good diversified portfolio

[00:14:33] so you buy you enter into a lot of small tickets now the difference is in venture capital you do that because it's very risky in our case you do that and the risk is not that high which is

[00:14:41] one of the reasons why you have that big over return so that's from the venture capital side for the private equity side you also have the two really things that make up private equity

[00:14:49] one is the leverage the fact that you go to the bank and the bank helps you buy this company and the other thing is that you're buying a company that exists that you can go visit

[00:14:57] so you can see the performance over the past years you can go visit the clients which makes it much much less risky than a startup so combining these two in the search fund is what makes search funds so special fantastic so you've touched on this slightly

[00:15:11] but I wanted to see if we can go into a bit more detail what unique advantage does this approach offer SME is compared to say traditional private equity or venture capital investment in the companies we go and approach our companies where the founder is creating a

[00:15:29] brick-and-mortar regular you know old school if you want to call it some people even call it boring a business which is a business that's safe and slowly growing yes so it's not a venture

[00:15:40] capital startup style business which you are trying to aim for creating a unicorn or a one billion euro value-weighted company you're more looking for brick-and-mortar regular companies and the owners of these companies like to work with search fund investors because they don't want the private

[00:15:56] equity individual to come and manage them and give them targets because usually if a private equity goes on buys a company they will never accept that the CEO leaves the company before maybe five years and if you're a well-off SME founder that's been your own boss for 30 years

[00:16:11] it's not easy for you to have a young private equity associate on your board and telling you what to do so our value proposition is you go to these companies that don't fit the venture capital world

[00:16:23] but instead of working with private equity people you work with a fellow or a son or the daughter that you never had because you have a young entrepreneur that wants to take over your business and this entrepreneur will become the CEO and you work with this entrepreneur

[00:16:37] personally so there's more of a good transition to a like a son you know that this founder never had and this is the real value proposition that neither private equity or venture capital can offer

[00:16:49] to an SME like this I like that so you've detailed the advantage this approach has in comparison to private equity or venture capital investment so look at some of the companies that you've worked with are there any notable success stories or case studies of SMEs in Africa

[00:17:07] that Moonbase Capital has been involved with that you can share with us so Moonbase is working more in Europe so our investment is mainly in Europe however search funds are quite new in Africa so

[00:17:22] there has been a lot of successes in SMEs like our family business for example which grew from SME to and being sold to a multinational however in the search fund world it's still a new world so

[00:17:32] there are searchers in different countries they did acquisitions in different countries but it's still early to judge on the success of the outcome of these deals you can see that they bought

[00:17:43] good companies but they didn't exit yet so it's hard to comment on that that said you can clearly see that the model is working there's a lot of SMEs there are there is movement but

[00:17:53] they cannot quote a specific success yet in Africa okay so how new would you say this type of investment approach is in Africa very new very new I mean there has only been investments in

[00:18:06] this field in Africa I mean I don't know the exact number but maybe in four years ago five years ago that's when it started and it started I think in South Africa was the first searcher

[00:18:17] in Egypt it only started the year and a half ago so it's quite new in Egypt that still are searching for companies so they are they didn't even yet acquire and in Africa it's a bit more

[00:18:28] tricky than Europe because of the lending environment it depends on the country of course it's you cannot generalize but in many African countries to have a bank finance an M&A deal for you

[00:18:39] is not so standard so it is not so easy to get financing the way you would get it in Europe that said you have very good SMEs that have great potential to grow

[00:18:49] so you can still have good deals but you will not depend on the leverage you don't depend on the fact that you will pay back the debt and make your return you need to depend on the fact

[00:18:58] that you can grow a lot and sell a lot and create you know and exit a much bigger company so you make up for no leverage by growth and this we've seen in Latin America work very successfully

[00:19:09] so in Latin America also the banks don't really support in many cases like Brazil for example Mexico maybe you can get 10% 20% but not more than that from the banks however we've seen really good returns because they bought cheap companies very small with a very big growth potential

[00:19:27] which they maximized so I think the model will work really well in Africa that said if banks and if the regulation will help buy small companies it will really boost this search

[00:19:38] from the world a lot and Africa needs it because if you think about it SMEs is our core I mean I saw before a number that said in Egypt you have around 80% of the GDP is made up of SMEs so it's

[00:19:50] a big big big number of the economy and many of those die off if the founder grows and does not have any succession plan the company eventually dies and for Africa to boost these companies and grow them into bigger multinational type companies would be very beneficial for

[00:20:05] the country so I hope that banks start supporting and that the whole environment is created to boost search funds in Africa thank you for sharing that earlier you mentioned a moon based capital aims to

[00:20:17] provide consistent returns with lower risk in an Africa context what strategies or practices would you employ to achieve this first step is to make sure that the entrepreneurs or the searchers who are looking for companies in Africa are looking for the right targets because

[00:20:36] in Europe it is easy to find a company that has 3 million euros of EBITDA and only has 15 or 20 employees now in Africa if you get a 3 million euro EBITDA company probably it will have much

[00:20:49] more employees it will be a much bigger entity let's say so I think the first step is to make sure that you choose a company or that the searcher chooses a company that is not that

[00:20:59] hard to manage and has all the criteria of a search fund so it's a secure investment it's very safe it has a good track record it has recurring revenue it has good margins so at least 15%

[00:21:11] EBITDA margins and once you find such a company I think it will be easy for the searchers who are usually very well educated individuals with a lot of potential to take this company that's

[00:21:21] easy to manage and grow it and I think searching and finding the proper company is a huge thing because if you get into a very hard company to manage in Africa would be the heart you can

[00:21:32] find some skeletons in the closet that would be hard to fix but if you find the right target and you have a founder that's willing to help and willing to support I think this guy is

[00:21:40] the limit so I would say find the right company and then Africa has a very good environment to succeed without anything else. You touched on something quite key there which is find the right company so how do you assess the potential of SMEs in terms of scalability

[00:21:57] and market reach? We work close with the founders to understand their own plans and we look for experts in the field that know the sector that we're buying in and with the searcher or the

[00:22:11] searcher is the one usually that does this exercise but we help them in creating a strategy for this company and thinking out of the box how can we take this company spend a year or two

[00:22:20] to understand the sector more and maybe not do too many changes in the first year or two but then eventually be able to enter new companies, businesses maybe buy another company and merge it

[00:22:30] to the first one. There's not two strategies I mean one strategy is M&A where you buy one company grow it a bit fix it and then buy during these first five six years two or three other companies

[00:22:41] so that's one way to grow and another way to grow is by focusing on sales and business development and being a bit more innovative and start growing the sales of this company as much

[00:22:51] as you can. So these are the two different ways that people do it and both work as well I mean in Africa I think it would be more the growth idea basically focusing on business development

[00:23:01] focusing on proper products and proper pricing in order to penetrate the African markets maybe countries around Africa as well so this would be the go-to strategy because M&A in our region

[00:23:15] has not been as entrenched in the business world as it is in the US for example the US M&A is a main way to grow in our countries because of the banking sector and because we're not yet used

[00:23:26] to going and buying companies and so it's I think in our case focusing on business development innovation and growth would be the go-to method I'd say. Fantastic so if we go into a bit more

[00:23:40] detail regarding this can you walk us through say a standard or your typical process that you'd follow when evaluating potential SME investments? Sure I mean let me step one step back first due diligence

[00:23:55] we do is on the searcher itself because first step is the searcher comes to us and says I am a potential CEO in France for example or in Egypt or in any country and I have expedients there

[00:24:10] and I would like to work with Moonbase to look for a company and here we have the good due diligence of this person himself education the drive the ambition we have a number

[00:24:22] of interviews and case studies to make sure that this person has what it takes to eventually grow and run an SME especially that they've never been CEOs before these guys are well educated many times they have MBAs in top schools or worked in consulting or investment

[00:24:38] banking private equity in Europe so they are usually high caliber people and then during the two years after we sign with them we work quite close to them so the first due diligence I would

[00:24:47] say is on the person himself. Then after that once this person finds a company we start very early on in giving our opinion on the sector on the company and the due diligence is done mainly

[00:24:59] by the searcher however the searcher is working with maybe 10 or 15 investors like Moonbase and all of us help the searcher the way we can best which is the brilliance of this model because let's say a searcher now finds a company in the automotive sector doing some service for

[00:25:20] the automotive manufacturers now on their cap table they will have investors who are experienced in private equity who investors who are experienced at MNA so negotiations investors who are experienced in the country itself let's say they're doing this deal in Rwanda then they would have experience

[00:25:39] in the country they would have experience in strategy and in the sector automotive so what they do is they work with all these investors in different parts of the due diligence in order to make sure that the company can really understand well the company and what they can

[00:25:55] grow with it now the beauty of search funds is there are very clear criteria that we follow so we don't reinvent the wheel every time we're looking for companies with a certain EBITDA size

[00:26:07] with a certain EBITDA margins we make sure that the industry is an industry with tailwinds so not a dying industry we make sure that the industry has it's a fragmented industry so we don't look for an industry where you have a fellow competitor that's very big and it's

[00:26:22] will be hard to compete so usually it's a very fragmented industry we're looking for recurring revenue so it's an industry where you have contracts going into two or three years to make sure that they're very safe so the criteria we follow is set by Stanford and Harvard

[00:26:38] 30 years ago and it has proven over the years to be very useful and we follow them once we find the company with all this criteria then the searcher hires one of the big

[00:26:48] accounting firms legal firms to do different due diligence so we hire KPMG or we hire one of those big firms to do a due diligence for this SME and then we as investors the different 15 different

[00:27:00] investors take this report to study it work with the searcher ask questions talk with the auditor so we really start from this report understanding the company and working with it but the beauty of this is because the searcher is the one who does the due diligence with

[00:27:16] the the the auditors or with the accountants and with the lawyers we don't have to personally be involved in the details of each of those investments which allow us to do multiple investments I mean in our in moon basis case we want to invest 15 million euros into around

[00:27:31] 25 companies so we aim to do maybe around seven eight nine investments every year over the first three years so in order to do that you need to make sure that someone else takes care of

[00:27:42] the due diligence and you are more studying whether you want to invest in this or not versus doing it yourself and hiding the CEO yourself and doing everything yourself so the due diligence is

[00:27:51] led by the searcher and supported by all the different investors and this is why I mean in moon base this year we've done around one deal every month and a half so there's no way to

[00:28:02] be able to do a deal every month and a half if you do everything yourself and this is the beauty of the model during that you gave an example of a searcher say for instance finding

[00:28:11] an opportunity in the automotive industry so what sectors or industries do you believe hold the most promise for search funds in Africa and why so the beauty of search funds is it is really industry

[00:28:24] agnostic so we work in such a variety and such a big span of industries however it always usually ends up either services or B2B so let's say for example an industry like stay with automotive

[00:28:40] we would never do like a heavy manufacturing for the automotive industry because it requires capex and or we'd never do something that sells to end products because you need to do marketing

[00:28:49] and you need to do distribution and so we don't do this stuff but we could do a service for example we are investing now in a company that is sharpening the tools for automotive is one of

[00:29:01] the industries we sharpen the tools for so for example if you're an automotive manufacturer you have tools that are cutting different plastic or iron or something these tools need to be sharpened every now and then so we can invest in a company that does a service which is

[00:29:14] sharpening tools for for example the automotive industry so we work with a huge I think all industries but we only choose either services or B2B because these are the ones that end up fitting the Stanford and Harvard criteria which we are always as an industry following

[00:29:30] so yeah I mean I mean there's so many sectors I cannot name a certain sector however we choose the safe service B2B from all these sectors in Africa the service industry is a bit smaller than what you find in Europe because usually the big industries are capital

[00:29:47] intensive or but however you can always find so we aim to always I mean it's very important to stay with that because if you go and invest in a capex heavy for example industry what happens

[00:29:59] is you cannot grow it because you need to keep putting money in order to grow now private equities and venture capital are built towards that but search funds is an area where the investors

[00:30:09] will put small sum of money many of them will put a small sum of money once and they don't want to keep fueling this growth of the company for example if you have a very small EBITDA margin

[00:30:19] it won't work for us because we'd like to work with banks and if you have a small EBITDA margin you will not be able to pay back the loan so at the end of the day we work more

[00:30:28] in services with this criteria but in a very wide range of sectors thank you for that you mentioned as search funds are sector agnostic which means that the investment approach must be stable and agile

[00:30:41] so how do you strike a balance between these two factors in your investment decisions well very good question I mean most of them are stable by defaults because they have our owned or managed by founders who's been running this for the past maybe in some cases 30 40 years maybe

[00:31:00] second generation or third generation even and these families usually do things in a very specific way so it's very stable in that regard what we do is we enter the business or the CEO or the

[00:31:12] entrepreneur enters the business takes over the company and stays with the stability for maybe two years and during these two years they try to learn and they try to not do any sudden movements because they're not from the sector I mean our entrepreneurs go to sectors that

[00:31:26] they never worked in before so it would be very foolish to go on day one and start doing very massive change you know before you have the experience so stability is always the first part

[00:31:36] of the deal and in many cases it is more stable than agile now in some cases what you do is you after you learn in two years you start inventing new ways to grow this business

[00:31:47] M&A is one way which is usually very agile and very innovative where you start buying other companies that are smaller than this SME and then build your growth strategy through M&A through mergers

[00:31:58] and acquisitions another way is to enter into a new field grow the product range do things that the old or the original founders never did so you need to have this agile mentality

[00:32:12] however it's very risky to go to a company like this and be too agile too early on so I would say we balance it through the process where it starts off quite stable and then the more you know about

[00:32:25] the industry the more agile the more you try to do things innovatively and then you change things around but it comes with the time so it's more of a process rather than you choose either that

[00:32:36] or that you do both depending on the time of where you are in the process basically thank you Frida so you mentioned that the entrepreneurs enter the business and take over for at least two years I guess this approach requires close support and guidance so

[00:32:52] what would you say is the importance of mentorship and guidance for entrepreneurs in the context of say search fund investment it is extremely important I mean the magic happens because you have three things that come together so one you have a brilliant entrepreneur who has

[00:33:14] great potential but only potential because they were not necessarily knowledgeable of everything it takes to do a search fund but they are very good potential so that's one part of the equation

[00:33:25] so the other part of the equation is finding a company that is stable and safe and has good potential as well so the other part is to make sure that you follow the criteria and get the

[00:33:35] right company and then the third part is the investors and without this third part it does not work and the reason is the part which you just said which is mentorship not the money ask because

[00:33:47] money is available you could get money from different areas but the mentorship is so important and the reason is in the search fund the entrepreneur is asked to do a lot of tasks

[00:33:59] that no one person can do I mean you start off by building a database of potential companies to buy and then you talk to them and then you have to negotiate a deal and so it's a more of an MNA

[00:34:12] private equity start and then after that you need to be a CEO and and see over small company which means you need to personally work on sales and personally work on marketing I mean

[00:34:22] you will hire a team of course and there is a team but it's given that it's an SME you as a CEO need to be very available and very like hands-on now given that a typical search fund

[00:34:33] would have maybe 15 investors this is how this solved when a searcher is building their cap table they choose investors with this view so they say okay I need two or three people who no private

[00:34:45] equity really went I need two or three people who ran companies in the country I'm going to find the company and I need two or three people that knows business and know strategy

[00:34:55] and know operations so they choose their investors very carefully not based on the money but more based on what they can offer the searcher and what mentorship they can and during the two years

[00:35:06] the searcher gets quite close to some of his investors not all of them because for example Moonbase we work really close to our searchers and we like to help them as much as possible we have an advisory team of 50 people that support these searchers when needed other investors

[00:35:21] they maybe don't work so close to them but they are private equity gurus so when the searcher needs anything in the private equity world they contact them and they ask them and

[00:35:30] these guys these investors always help them and the beauty of the search fund world is that the investors and entrepreneurs are very close and very well it's well it's well-lit community in general so people are very helpful and mentorship is the main part that the searchers

[00:35:47] work with different investors based on what they need and without it would never work because there is no searcher that can do this whole task from locating and negotiating and closing a deal and

[00:35:56] then running a business and exiting it and no one can do it alone so in our case mentorship is extremely important it's really what makes this thing whole work awesome awesome so we've touched on this in terms of mentorship so beyond the initial investment phase how does Moonbase

[00:36:11] capital support the growth and development of the companies it invests in we serve on the boards of not all but more than half of the investments we are a part of the board and either one of the

[00:36:26] gps or either myself or one of us one of Moonbase is representing Moonbase on the board or in some cases we can have one of our investors who knows the sector or one of our advisors who know

[00:36:37] the sectors if they can add more value but we are on the board is what we do and we as board members consider ourselves team players so we do what's needed in order to help the company grow this

[00:36:49] could mean doing a workshop for one function in the company or do meetings extra meetings with the ceo to help in a certain topic or getting an advisor so what we do is we either help on the

[00:37:01] board or anytime we're called upon we help a lot usually the board are the ones who are closest to the searcher because once the searchers the ceo they also are very busy running the business and

[00:37:12] if they deal with 15 different investors one by one they would be overwhelmed you know they would be working more with the investors rather than in the market so usually the board are the ones

[00:37:22] that are closest so the business where we are on the board we're very very involved the ones where we're not on the board we have a quarterly meeting we see if we can help but these are the

[00:37:31] ones where we usually are not as close as the ones when we're on the board brilliant so I guess if we bring this back to our discussions about SMEs in Africa given your experience in doing

[00:37:43] business in North Africa and exporting to the rest of the continents and the rest of the world what are some of the key opportunities you've observed for SMEs in the region start to tell because Africa is a great place to grow business from a market perspective because

[00:38:01] the competition is not that fierce like you see in the west for example and the market is big I mean Africa is I mean a huge part of the world more than people recognize so if you are selling

[00:38:15] something that different people in Africa need you have a very big market and you don't have that much competition even Europeans and western companies usually struggle to grow in Africa I mean

[00:38:26] some are very successful but it's not that easy for them it's a very different culture it's also Africa is so many different countries that are very different so it's not like Europe for example

[00:38:34] where countries are somewhat attached you tackle a lot of countries I cannot pinpoint an opportunity in a certain sector but what I can say is there is a huge very big market there is a lot of

[00:38:48] needs that need to be fulfilled and filled by companies and there is a lot of hardships which make people who can navigate these hardships very successful so some multinationals struggle in Africa because the way to do business is different the way to deal with the culture is different

[00:39:05] the way to understand the needs of the consumers different now if you are someone from Africa and someone who knows the market and knows the consumer and know how to navigate and work

[00:39:14] with the government and work with the municipalities and you're able to navigate this world and you're well educated that you can compete and can create a company that is well managed you can really reach

[00:39:27] a huge highs and there's a lot of examples business people in Africa that succeeded after learning how to do business and after creating a product that was successful in other markets bring it back to Africa and growing it so I would say the opportunities of doing business

[00:39:43] in Africa is really big and there's a lot of things you can do if you are able to provide the product that solves the needs that you can manage a company really well and navigate the African way

[00:39:54] of doing business if I may say you touched on in terms of there are a lot of needs that need to be fulfilled in a range of African markets we know that one of those needs is obviously

[00:40:06] access to capital so are there any specific trends that you're seeing in the search fund space that you're excited about that you think would be a benefit to African SMEs

[00:40:18] I mean I wouldn't say that no I don't see a specific trend I mean if you are able to get your hands on proper financing in Africa either through family offices that you work with or

[00:40:33] wealthy entrepreneurs or CEOs previous CEOs that want to invest but have no time or don't know what to invest it would push you a lot because getting investments and getting financing in Africa is quite a challenge for SMEs it's not that big a challenge for startups

[00:40:49] for example because startups there is a lot of venture capital that's growing like crazy in Africa there is a lot of angel investing and people are really willing to put money in these startups however SMEs is different because in startups you take the risk of putting your

[00:41:04] money and if it succeeds you make a huge return and you know if it doesn't succeed you're okay with it but in SMEs you don't have this huge return that you expected to not build into a unicorn

[00:41:16] it will be a good business it will grow but SMEs suffer a lot in this whole financing world they don't get banks are very tough on SMEs banks are much easier to give to big entities

[00:41:27] either multinational or local entities that are of a certain size but SMEs suffer in Africa quite a bit of course I see in Africa broadly but some countries are not as much as others now

[00:41:38] so I would say financing is one of the things that if someone has good contacts people that trust them and can get the right investments for a business they will be quite ahead because that's

[00:41:49] a place where many many struggle and many are talented have good ideas but they don't get the right financing to grow business and financing is a main element of succeeding in business whether it's equity through people who will invest their own money or debt if you can get

[00:42:04] it from the bank if you have connections or if you live in a country where banks will help you easily but I would say financing is one thing which makes a big difference in Africa because it's lacking

[00:42:16] a bit. I agree so how do you see the search for space in Africa evolving in the next say five years time? Unfortunately I think it will not evolve as quickly as it did in the west and the reason is

[00:42:32] two things actually one is the fact that it's built around entrepreneurs and these entrepreneurs or searchers are people usually or at least in Europe are people who do top MBAs in top schools who have experience in top firms or these very let's say talented with big potential

[00:42:51] employees. Now Africa we have such calibers of course not as many as the west but we have quite a bit the problem is that many of them choose to do something other than entrepreneurship in Africa so

[00:43:02] many of them either stay in Europe or go back to Africa in a multinational company or go back in a big position because there is not so many of them you can choose and you can you can have

[00:43:11] these choices so unfortunately the first step in search funds is having an entrepreneur that wants to go and look for this company and this entrepreneur has to have specific or very good qualifications and there is not so many of them coming and doing this there are

[00:43:26] but there is not so many coming and doing it so I don't see a huge let's say influx of that although it's growing so that's one element that I don't think it will fly quickly. The second thing is

[00:43:39] we talked about it a lot which is the financing the government should give search funds a thought because many of the investors of search funds come from outside Africa some will be from Africa

[00:43:51] naturally because the Europeans will not want to invest in a country with no one with no invested from the same country but maybe two thirds will be from outside the country which is

[00:44:00] FTI that countries in Africa need dearly. Now if they are able to have the banks understand the model and have the banks help in financing it will help a lot so that's the other point

[00:44:10] which is not yet developed and take some time I hope not so much time but it will take some time. The third one is simply the difficulty of finding a right business that is not too complex in this

[00:44:24] bracket in the size 1 to 5 million euros you mean there's a lot and the European investors are looking for companies in this range so you need to find companies in this range which

[00:44:33] of course exist but you need to find companies that also fit the model that are not too complex to manage have recurring revenue etc etc which means the pool of companies is not as big as you

[00:44:43] find in the west so I think search funds have a huge potential is very much needed but unfortunately the infrastructure let's say or the ecosystem will take some time to develop and that's not

[00:44:54] only Africa by the way this is all developing countries so Africa is not that much behind other Asian or you know other Latin America is in the developing world is maybe the most

[00:45:05] advanced because of its proximity to the US because there is a lot of people who study in the US then go to Latin America to do search funds but other than the US and Canada and western Europe all the

[00:45:19] other countries are still developing fast so Africa is on the same map but I think it will take some time to really explode but hopefully we see it soon because Africa needs it there is

[00:45:30] not as a means good as a means brilliant brilliant so where do you see yourself in moon based capital of five years time what are your long-term goals and aspirations in Africa

[00:45:42] we hope to start working in Africa heavily I hope that in the within the next five years we will see more and more entrepreneurs in Africa and we will hopefully start working more and more in buying companies in Africa currently we are focused more on Europe and

[00:45:59] the reason is because the the search fund world in Europe is very developed so it as a young company that's only been existing for two or three years it's good to be somewhere which is already developed

[00:46:11] so you reduce the risks you have but in the future for sure we want to focus a lot on developing world especially that we come from the developing world and we know how to do

[00:46:19] business in the developing world quite well so it makes sense that we invest in there and there's not a potential a lot of return that can be that can happen in the developing world

[00:46:26] so hopefully in the next five years moon base will start working more and more in in Africa and me personally I mean I am really emotionally connected to Africa let's say I like Africa

[00:46:38] a lot I even my football I'm either cheering for Nigeria or Ghana or Egypt or so for me I'm quite African at heart so let's see hopefully moon base will land in Africa soon and grow in Africa

[00:46:52] brilliant I hope so too because you've totally sold me on the idea of search fund so it's something that I look forward to seeing grow on the continent I hope I hope so too let's keep our fingers crossed

[00:47:07] as people we often have quotes mantras proverbs or affirmations that keep us going when times are challenging or when times are good do you have one that you can share with us today

[00:47:17] yeah keep walking I mean in anything I do if life is hard close your eyes keep walking and it usually it solves itself so keep walking is mine yes I guess keep on moving keep things going keep

[00:47:30] walking brilliant I like that one thank you for sharing that my pleasure my pleasure as we're coming to the end of today's conversation I was wondering if you have any closing remarks final course to action for people who are interested in search funds or the work that

[00:47:45] you're doing at moon base capital I mean please visit our website if you're interested we have a lot of resources you can read about search funds and and search funds is brilliant so I invite everyone

[00:47:56] to consider it either as an investor or as a searcher or as an SME that you want to sell your company and my final remark is I'm really happy with this podcast because

[00:48:07] we need to all focus more on Africa as Africans and I'm really happy to have this discussion and to hopefully inspire some people in Africa to take this route and this could be a step

[00:48:18] forward the big step actually forward in search funds for Africa so I really have to thank you from the bottom of my heart for this very nice discussion thank you so much it's been a pleasure

[00:48:26] having you on the podcast thank you for joining me today and sharing your insights on SME investment and moon base capital's innovative approach through search fund it's been extremely enlightening has definitely shed some light in terms of the intersection of entrepreneurship

[00:48:42] investment and the business landscape and I look forward to seeing more search funds on the continent in the near future thank you so much thank you for your meeting fantastic and we will speak soon Ibrahim thank you bye bye thank you to everyone who has listened and

[00:49:02] stay tuned to the podcast if you've enjoyed this episode please subscribe share or tell a friend about it you can also rate review us in apple podcast or wherever you download your podcast thank you and see you next week for the Unlocking Africa podcast