Would a Small Business Fund Work?

Do you know what your superpower is? What about your unique skill-set? Someone asked me this a few weeks ago and I was stumped.

I've always thought of myself as someone with average skills and above average hustle and work ethic. I have a weird, non-linear set of experiences: FX & Options Trader, Single Family Office, Private Equity, Bootstrapped a Start-Up and sold to PE-backed company, Best Selling Dad Joke Author, and a few others...

So what is this crazy skill-set best suited for?

I don't have the answer for this yet. However, the obvious idea would be to run an investment firm that allocates capital and resources to SMB deals. In other words, a Private Equity fund for Small Business Deals. I have the investment experience and the hands-on experience growing and selling a business. Would I enjoy this? That's a whole other question!

There are already search fund investors out there, but with the rise of self-funded searchers, it made me wonder if a strategy like this would ever work?

The two biggest questions to answer are:

Is there enough quality deal flow to invest in? I think the answer is yes, but work would need to be done to make you the capital provider of choice.
Can you provide enough capital to make the economic structure work? These are small deals with limited equity needs. Could you get enough investment allocation to make this work?

Rough Modeling:

With some simple assumptions, I wanted to determine the potential "revenue" from a strategy like this. Given the small fund size, I ignored the benefit of management fees as it wouldn't even cover operating and legal costs for the fund. The important thing to remember is that carry dollars would be paid out over 5-10 years as businesses begin to sell or recap. This makes the initial ramp to "profitability" quite slow.

Here are 2 scenarios with 2 different deal paces:

Invest in 4 Deals Per Year:

Invest in 8 Deals Per Year:

Is the Juice Worth The Squeeze?

That's a deeply personal question for whoever chases this strategy. My hunch is that you could find a number of ways to make this work as your operating costs could be quite low. This could be a 1-person shop with outsourced fund management and legal. I'm guessing the person could probably have another business they're running at the same time. Raising $2-5m to invest in SMBs is very doable. However, the big question that still needs to be answered: Can you get access to 100+ deals per year so you can choose the 4-8 you want to invest in?

I'd love to get peoples thoughts on this strategy and approach.