ETA Key Activities

Newsletter #2/3 in “ETA Fundamentals”

This is newsletter is the second in a three-part “ETA Fundamentals” series that covers the following questions:

  1. What is Entrepreneurship Through Acquisition?

  2. What are the key activities in ETA?

  3. What are the the different ways to participate in ETA?

What are the Key Activities in ETA?

There are three key activities in ETA: Search, Acquire, Operate. You’re a one-person Private Equity firm: you source the deals, negotiate and close the transaction, and then operate the company. You’ll engaging in disparate activities throughout the journey, and the skills that made you successful in the prior step are not necessarily the same skills you need to thrive in the next step.


The most important part of the search phase is to understand the outcome you’re looking to achieve and have thoughtfully identified companies that fit these criteria. Many searchers (especially those searching “on the side” along with a full-time job) aimlessly kicking the tires on companies with no strategy. Successful ETA searchers have a clear idea of constraints in their search, and narrow down opportunities by:

  • Company size (usually expressed in earnings / cash flow)

  • Geography

  • Industry

There are two primary ways that people can find a company to buy:

  1. Intermediaries / Business Brokers: If you think of ETA like buying a house, intermediaries are the equivalent of real estate agents. Like real estate agents, they receive a percent of the transaction and there’s high variance in quality. The pros of working with intermediaries are that you know the business is for sale and the broker has worked with the seller on expectations around price. The drawback of working with brokers is that prices will be higher due to a transparent process with multiple bidders.

  2. Proprietary Outreach: searchers can also conduct cold outreach to business owners with the hope of getting the owner to sell - the equivalent of reaching out to the owners of homes that are off the market. Proprietary outreach can help a searcher find a high quality companies with lower competition, hopefully at an attractive price. The drawback of outreach is that 99% of the time the answer from the seller will be “no,” and many of the replies will be from business owners kicking the tires to see what their business might be worth.

The search phase ends (or, more accurately, goes on pause) once the searcher finds a company who agrees to enter into an LOI (Letter of Intent). Because the “Acquire” step is all-consuming, many searchers are unable to keep search activities moving after entering into an LOI.


Once you start the “Acquire” step, the clock is ticking. Both parties - the buyer and the seller - enter into a time-bound agreement of exclusivity. The expectation is that both sides are solely focused on closing a potential transaction, but either side can walk away at any time. The “Acquire” step can take between three to nine months for a small business transaction, depending on the complexity of the diligence process, negotiation challenges and other factors.

The LOI is typically a short document that provides the broad brushstrokes of the transaction, including price and the structure of the deal. This is different from buying a home, where the starting / ending terms are fairly similar and diligence is largely a process of securing debt. Over the course of the “Acquire” step, the broad brushstrokes turn into specific, final terms. For example, the buyer often orders a Quality of Earnings report that double-checks all of the seller’s financial claims, and adjustments to earning can result in adjustments to purchase price.

This is a highly charged and emotional process for both sides - buyer and seller. Many deals fall apart in the Acquire phase: the average search fund searcher enters into three LOIs during a two year search. If everything goes well, the Acquire step ends with the seller receiving cash and the entrepreneur and investors receiving ownership of the company.


For most people, the chance to operate a company as owner / CEO is the reason they get into Entrepreneurship Through Acquisition. Although this is the most important part of the journey, there will be less about the Operating phase in this newsletter.

The Operate phase is more diverse than Search and Acquire, which don’t differ as much based on the type of company you’re buying. The day-to-day of operating can vary greatly depending on industry, company size and other factors.

If you’re still reading, I’d love to hear from you. Just hit reply and let me know what your goals are with reading this newsletter. I’d also appreciate any feedback - positive and constructive - on what you’ve read thus far.

ETA Course

If you’re interested in going deeper on Entrepreneurship Through Acquisition, I’ll be teaching a course in November. The goal of the course is to deeply understand the different methods of participating in ETA and choose the one that’s best for you. It’s a live, cohort-based class where you’ll have a peer group to learn with and learn from.

You can learn more about the course and sign up for updates here.

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