Jonathan Levin, president of Stanford University and Bing Presidential Professor, warmly welcomed the attendees of this year’s Search Fund CEO Conference at Stanford Graduate School of Business on September 3. “Every time I come to this event, I say the same thing: I can’t actually imagine any other asset class out there that could have a conference where people like each other so much, and want to spend time together, and are so open and generous with their ideas,” he said. “This community is an amazing thing that you all created, and it’s special that we get to host it here at Stanford.”
This was Stanford GSB’s fifth Search Fund CEO Conference. The fact that it’s organized and convened on the Stanford campus is not incidental: Search funds, an investment vehicle through which investors financially support an entrepreneur’s efforts to locate, acquire, manage, and grow a privately held company, were the brainchild of Stanford GSB professor H. Irving Grousbeck, The MBA Class of 1980 Adjunct Professor of Management, who came up with the notion in 1984. The model was considered unconventional at the time — “visionary,” in Levin’s words — but search funds have since developed into a more mature sector.
The first Search Fund CEO conference, with roughly 230 attendees, was held in 2017. This year’s conference drew nearly 500 attendees from around the world, most of them CEOs or their closest advisors and supporters.
“When we started this, there wasn’t a conference for CEOs, and they are the biggest part of this engine,” said Peter Kelly, MBA ’89, a Stanford GSB lecturer in management and the conference chair. “So the content has changed over the years, but the goals have not. This conference is to help CEOs of search companies, along with their boards, build something great.”
A Focus on Artificial Intelligence
Attendees took advantage of numerous networking opportunities throughout the conference. | SF Photo Agency
The use of AI was a centerpiece at this year’s conference, with a panel that focused specifically on its role in three very different companies: ProService Hawaii, an HR company focused on the Hawaiian market; Tecnomotum, a transport logistics company in Mexico; and Biometrics4ALL, which contracts with the U.S. government on background checks.
Brigid Mulcahy, MBA ’21, CEO of Biometrics4ALL, spoke about how she drove internal AI adoption from the ground up, allowing her developers to test different products and present arguments for which would be best to adopt — a process that not only ended with a new product to use, but also generated buy-in across the company.
The result has been an average increase in productivity of 30%, or the equivalent of “adding three people to every team of ten,” Mulcahy said. “Importantly, one of our company’s top developers attributes this change in velocity not only to assistance from AI, but to renewed excitement and curiosity and engagement with his role.”
This shift has also meant an adjustment in Biometrics4ALL’s hiring strategy, which now focuses on openness to these new technologies. Interviews for nearly every role touch on AI.
Returns on Investment
Also at this year’s conference, Will Thorndike, MBA ’92, managing partner of The Cromwell Harbor Partnership and one of the earliest search investors, shared key lessons from a deep investigation of the first seven search funds, which have posted astonishing returns over the years. “I wanted to know what was in the water,” he said in conversation with Kelly. “How was this group different from what we see today?”
One of the answers was the length of time investors held these original companies. Five of the seven were held for more than 10 years. Three of the companies were held for more than 20 years. (Another panel in the conference, titled “Growing Equity Value for the Long-term,” tackled head-on the question of how to think about holding times.)
Will Thorndike (left) shared learnings from a deep investigation of the first seven search funds, in conversation with Peter Kelly (right). | SF Photo Agency
Thorndike highlighted the structure and composition of boards among the original seven. They all had a well-defined chairman role. They also tended to be small — five or six people — and they were composed of members with outsized success investing or operating in larger companies, whereas boards today tend to be investor-heavy and from the search fund community. “If you look at search fund boards today, there is real potential in adding new blood from other backgrounds,” Thorndike said.
The conference, held September 3–4 this year, was compared by some attendees “to a family reunion,” said Dom Ng, associate director of Stanford’s Search Fund Project. Though the space is growing — search funds are an increasingly popular path to becoming a CEO — it remains small compared to other forms of investment and unusually tight-knit.
This alignment and interpersonal closeness, said Kelly, generates trust and respect that creates greater efficiencies and, eventually, success. “When you trust and respect others you can just make decisions faster. To be blunt, that leads to better execution, leading to better companies, leading to better returns,” he said. “There’s also just an affinity between people, a spirit of cooperation, of putting the entrepreneur first. We’ve got round elbows because that’s the way Irv did it, and also because it’s probably better for the long run.”
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