A Stanford MBA’s Quest To Reverse A Troubling Trend

CLAIMING ‘OWNERSHIP OVER THE TRAJECTORY OF MY CAREER’

A search fund is a financial vehicle created by entrepreneurs who raise money from investors to locate, acquire, and lead a privately held company. Investors, usually numbering around 10 or 12, each provide a portion of the initial search capital, typically between $400,000 and $500,000, which is then used to pay the searcher’s salary, travel expenses, and administrative and other expenses during the search. A typical search lasts between 19 and 24 months, according to the 2018 Stanford study, which is the amount of time it takes to find, procure, and begin to operate a company.

It’s not vulture capitalism. The end goal of most search funds is to control a company over the medium to long term. It’s a model — originated at Harvard in the mid-1980s and popularized at Stanford in the decade afterward — that offers recent MBA graduates with limited capital a path to owning, managing, and growing a company.

“I had never heard of a search fund before I came to the GSB,” Larin tells Poets&Quants. But it was perfect for her — a way to “have ownership over the trajectory of my career.” Her goal is to own and manage a fintech company. But even as she discovered searches, Larin also learned the reality of a very exclusive community.

“Searches can be perceived as boys’ clubs,” Larin says. “I think from the outside they certainly can be perceived that way. As I’ve been talking to a lot of potential investors — if I’m going to raise a search fund after the GSB, that’s the nature of the game — I’ve heard the stories, and a lot of other searchers and CEOs who have been through it before. It’s a pretty small community and a pretty close-knit community.”

NO FINANCE BACKGROUND? NO PROBLEM

In particular, Larin was concerned that her lack of a finance background would put her at a disadvantage, search funds being heavily populated by private equity types. But Stanford had a way of easing her concerns.

“As a woman coming into the GSB, I had full confidence — and have full confidence — in my ability to go into tech. There’s a ton of resources and precedent for female founders in Silicon Valley. In fact, a bunch of my classmates are bad-ass female co-founders. So, that was never really a question for me.

“For me, it was more that looking at the search space, I looked around at my classmates who were interested in going into search and you can see who the other people, it’s a small class, right? You can see the other people are who are interested in following a similar path, and it’s seven other white men. Which is no fault of theirs and no fault of the professor, certainly. But even for someone at Stanford who is just so lucky and privileged to be there and has all of the resources imaginable, it still can be discouraging.”

Discouragement didn’t last long. “People have have been incredibly receptive to my outreach,” Larin says. “There’s a search fund class at the GSB that I took that kind of opened my eyes a little bit because I had thought, ‘Oh, I don’t come from a private equity background, so there’s no way I could be a searcher.’ I kind of discredited myself right off the bat. And taking the class, the professors were pretty conscious of the fact that there aren’t really very many women in the industry — but any that are in the industry, they brought to the class to serve as role models to other women in the class.

“It was interesting: In the class of maybe 70 students, there were fewer than 10 women. Women for whatever reason are less interested in search. I might not have even gotten involved in the community to begin with because I just didn’t have the financial acumen, coming from consulting. And so I thought, ‘Oh, to raise a fund I must need to have been in this boys’ club already in finance in order to break into it.’ And only once I took a step to talk to other folks in the community was I able to learn that that’s absolutely not the case. That’s a complete myth.”

MOVING FORWARD WITH FIRST STEPS

At Stanford, about 16% of the MBA Class of 2019 became entrepreneurs, about the same as the previous year, third-most of any top-50 U.S. school after Washington Olin (20.7%) and Michigan Ross (17.3%) and far more than any of the top European schools; ESADE, in Spain, is closest at just under 5%. That GSB class had 40% women; and though the GSB was still a year from enrolling a class with 47% women, its 41% that came to Palo Alto, California in the fall of 2018 put the school among leaders in female representation. Meanwhile, the startups have poured forth. The San Francisco Bay Area is home to 38 of 101 startups to make Poets&Quants‘ 2019 list; altogether nearly half (46) of the top MBA startups of last year were headquartered in California. This year (read all about it on Friday!), of the P&Q top 100 startups, Stanford has 38, Harvard has 20, Chicago Booth has nine, and Wharton has nine; in the seven years since we’ve been chronicling the entrepreneurship scene: Stanford leads all schools with 214 startups, and HBS is next with 207.

Most relevant to Carla Larin’s mission: More than one-fifth of the 2020 P&Q 100 startups are founded and run by women. Those companies are still in the extreme minority, and progress may seem glacial, but it’s a move in the right direction.

It’s the same direction Larin is going: forward. Moving ahead with her plan to launch a traditional search fund after graduation this spring — and doing it by herself — she organized an event March 4 that brought female investors in the space and female searchers/CEOs to the Stanford campus to promote search as a viable avenue for women entrepreneurs.

“I can probably count on one hand the number of women who have done it solo, and I’ve already had upwards of 50 or 60 conversations in the industry,” she says. “It’s exciting. A lot of people who do it, do it solo. Obviously, much fewer women who do it solo than men. 

“I have a pretty good sense of who the searchers are out there. Because it’s a small community. But I do have confidence that the group of investors I’ll be able to bring together will provide a lot of the mentorship and support that I will of course need as part of this process. And there is one further point on this: There are a few female investors as well, which is very comforting. 

“Hopefully we can get more women to at least be interested in taking a first step toward learning more about the space.”

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