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Entrepreneur
25-06-2025
- Business
- Entrepreneur
Think You Need Millions to Buy a Business? Think Again.
How to build a fundless buyout strategy — a flexible path to long-term wealth creation. Opinions expressed by Entrepreneur contributors are their own. Most people assume that to succeed in private equity, you need to raise a multimillion-dollar fund first. But what if you could flip that script? A new generation of dealmakers is doing just that, acquiring and growing businesses without a traditional PE fund. This "fundless sponsor" model isn't just a workaround for those who can't raise capital. It's become one of the most agile and operator-friendly paths to long-term wealth creation. If you're a founder, operator or emerging investor, here's how you can scale like a private equity firm without ever raising a fund. Related: 10 Factors To Consider When Making An Acquisition What is a fundless sponsor? A fundless sponsor (also known as an independent sponsor) is someone who sources, negotiates and structures a business acquisition without having pre-committed capital from investors. Instead, they raise equity on a deal-by-deal basis. In simple terms, you find a good business to buy, lock in the terms with the seller and then bring in investors and lenders to finance the deal. This model has exploded in popularity, especially for deals in the lower middle market (companies with $1M–$10M EBITDA), where valuations are lower, sellers are more flexible, and larger funds typically don't play. Want to explore live deals? Platforms like Axial and MicroAcquire offer vetted deal flow for buyers. Why fundless is the new fund smart This strategy offers some unique advantages: No blind pool : Investors commit capital to specific deals they like. Faster to launch : You don't need a track record or institutional LPs, just hustle, judgment and one good deal. Alignment with investors : Equity backers get deal-level transparency and control. High upside for you: Fundless sponsors typically earn 10%-30% of profits (a "promote"), plus acquisition and management fees. It's not surprising that even experienced GPs are shifting toward this model. It allows them to stay lean, focus on execution and build trust with investors one win at a time. Anatomy of a fundless buyout Let's break down a basic deal structure: Target company : HVAC company doing $1.2M EBITDA, asking $4.8M (4x EBITDA) Financing plan : $3.2M in SBA/bank debt $1.6M in equity from investors Sponsor economics : 2% acquisition fee ($96K) 20% is promoted after investors get an 8% preferred return Potential management/monitoring fee Once the deal is done, you (as the sponsor) lead strategy, oversee operations and align incentives with your investors. You earn your upside by creating value, not by charging annual management fees like a fund. SBA loans are a common tool here, especially the 7(a) loan program, which allows you to borrow up to $5 million with as little as 10% down. Related: A Beginner's Guide to Private Equity Who are the investors? Fundless sponsors typically raise capital from: Family offices that want direct ownership in operating businesses High-net-worth individuals (HNWIs) who prefer cash-flowing deals over speculative VC bets Former operators looking for passive income and equity exposure Private credit and small-cap PE firms open to co-investments One big plus: These investors are often more collaborative and flexible than institutional LPs. But you must be ready to show them a clear plan for value creation and downside protection. What makes this work? Here are four factors that separate successful fundless sponsors from the rest: Relentless sourcing: You'll need to look at 50-100 businesses to find one worth pursuing. Build relationships with brokers, run cold outreach campaigns, and use your industry insight to find overlooked gems. Deal de-risking: Validate financing early. Soft-circle investors. Confirm that seller expectations are realistic before going deep. Operational playbook: You're not just a buyer, you're a builder. Have a 100-day plan post-close. Know how you'll grow revenue, improve margins or professionalize the team. Repeatable system: Your first deal is your track record. Document everything. Treat every step — outsourcing, diligence and investor communications — as a template for your next acquisition. Common pitfalls to avoid While the fundless model is accessible, it's not easy. Here are some common mistakes to sidestep: Overvaluing the deal : Don't fall in love with a business that doesn't pencil out. Keep discipline on price and debt terms. Underestimating operations : Buying is one thing, running a business (or managing a team that does) is a whole other challenge. Weak investor alignment: Choose equity partners who are patient, aligned with your vision and comfortable with the inherent risks. Remember: Raising money deal by deal is about trust and clarity. If you communicate clearly and deliver results, capital will follow. Related: What You Need to Know to Buy the Right Business and Acquire Your Empire When (and if) to raise a fund Many sponsors eventually raise funds, but not always. Only raise a fund when: You've closed a few successful deals You're bottlenecked by capital, not deal flow Your LPs ask for it You're ready for the admin, compliance and investor expectations that come with it Otherwise, staying fundless gives you flexibility and control. You can scale at your own pace and even build a portfolio of cash-flowing businesses before raising a dollar of committed capital. You don't need a $100 million fund to build wealth through private equity. You need a great deal, the right partners and a clear strategy to create value. Fundless buyouts are the entrepreneurial version of PE — scrappy, focused and aligned. In today's economy, where capital is cautious and execution matters more than ever, that may be the smartest strategy of all.
Entrepreneur
23-06-2025
- Business
- Entrepreneur
How to Use Micro-Acquisitions to Scale Faster and Smarter
Opinions expressed by Entrepreneur contributors are their own. Most people assume that business acquisitions are reserved for massive companies with deep pockets and teams of M&A lawyers. But here's the truth: You don't need a war chest to buy and grow another business. In fact, you can scale faster, safer and smarter by using micro-acquisitions — small, strategic purchases of businesses that cost less than what most startups raise in a seed round. Micro-acquisitions aren't just a shortcut to growth; they're a powerful way to buy revenue, talent and capabilities without the slow grind of building from scratch. Here's how entrepreneurs can use them to scale without raising millions and without the typical risk that comes with starting everything from zero. Related: Entrepreneurship is Risky. Follow This Less Risky Path For Entrepreneurial Success What exactly is a micro-acquisition? A micro-acquisition typically refers to the purchase of a small business, often in the range of $50,000 to $500,000. These deals usually involve solo founders or very small teams and are often bootstrapped businesses. You'll find them in SaaS, ecommerce, media, digital services and even niche B2B verticals. Unlike larger deals that require complex due diligence and outside investors, micro-acquisitions can often be done quickly and creatively financed, sometimes even with seller financing or revenue-based payments. A great place to browse real-world examples is MicroAcquire (recently rebranded as which has become the go-to marketplace for buying and selling small internet businesses. Why micro-acquisitions make strategic sense When you build a business, you're investing time and money into acquiring customers, building a product and refining operations. But when you buy a business, even a small one, you skip ahead in the game. Here's what a micro-acquisition can instantly provide: Revenue : You're buying cash flow from day one. Customers: You inherit a base of users or clients without the CAC (customer acquisition cost). Product or tech : If you're in software, buying a product that's already functional saves months of development time. Team : Even one or two experienced people onboard can supercharge your capacity. SEO/traffic: Media sites or content businesses often come with valuable search rankings. This is why seasoned entrepreneurs often say, "Build if you have to. Buy if you can." Related: Is Acquiring a Business Right For You? Here's How to Know If You Should Buy a Business or Start From Scratch How to find the right micro-acquisition target The key to smart acquisitions is alignment with your goals, capabilities and existing infrastructure. Here are three practical ways to uncover acquisition targets: Marketplaces : Flippa and Tiny Acquisitions all list small online businesses for sale. You can filter by size, revenue, industry and growth. Your own network : Many small business owners would sell if they knew someone they could trust. Put out feelers in your LinkedIn network, communities and industry groups. Inbound interest: Once people know you're open to acquiring, founders may reach out directly. It happens more often than you think, especially if you're known in your niche. Look for businesses where you can add unique value. Maybe you have distribution they don't have or operational strengths that could increase margins. How to fund a micro-acquisition without VC money You don't need to raise millions — or anything, in some cases. Micro-acquisitions can be financed in surprisingly flexible ways: Seller financing : The seller agrees to let you pay a portion up front and the rest over time. It's common in smaller deals and shows the seller's confidence in the business continuing to perform. Revenue-based financing : Platforms like Pipe or Capchase let you borrow against predictable revenue, especially for SaaS. Cash flow from your existing business : If you already run a profitable company, you may be able to acquire a smaller one with internal cash flow. Partnership or joint acquisition: You can co-acquire a business with a partner who brings cash, skills or time. Because these are small deals, you don't need to be a finance wizard. Just ensure that the business you're buying can at least cover its own debt payments and ideally contribute profit from month one. What to look out for before you buy Not all micro-acquisitions are worth it. Some look good on the surface but are hiding churn, tech debt or founder-driven sales. Here are red flags to watch: No clear documentation : If the financials are murky or inconsistent, move with caution. Customer churn : In SaaS or subscription businesses, ask for cohort data. A leaky bucket is hard to fix. Overdependence on the founder : If the owner is also the top salesperson, developer and customer support agent, you'll have a lot to replace. Platform risk: Is all their revenue coming from a single ad platform or one ecommerce channel? Do your due diligence, even if it's light. Related: What You Need to Know to Buy the Right Business and Acquire Your Empire Post acquisition: Make the first 90 days count Buying the business is only the start. The value is in what you do after the deal closes. Here's how to make your acquisition pay off: Stabilize : Keep existing operations running smoothly and avoid major changes immediately. Communicate : Let existing customers and any team members know what's changing (and what isn't). Integrate : Plug the acquired business into your existing stack, whether it's tools, processes or branding. Optimize: Use your strengths to unlock growth. Can you improve pricing, add new marketing channels or reduce overhead? Think of your acquisition as a new product line or revenue stream and manage it like you would any core part of your business. If you're running a business, you already know how hard it is to build. Buying a business, even a small one, can be one of the smartest, most leveraged moves you make. Micro-acquisitions put growth within reach without the dilution, risk or grind of raising capital. You get to skip the messy zero-to-one phase and jump into something with traction. As more platforms and tools emerge to make small business deals accessible, this strategy is only going to get more popular. The earlier you start learning the playbook, the further ahead you'll be.
