Mindspace Co-Founder Raises $25 Million for Fund Buying Family Businesses Without Successors
Yotam Elroy, co-founder of the shared workspace company Mindspace, is launching a new investment fund in Israel called Pitlane Capital, having raised $25 million for it. The fund will focus on acquiring small family-owned businesses facing founder retirement or lacking a successor. Pitlane Capital has completed its initial closing with participation from angel investors, fund managers, and family offices in Israel. Alongside Elroy, Omer Ben Sach serves as Operating Partner and investor; he has over seven years of experience investing in the Entrepreneurship Through Acquisition (ETA) sector, with more than 60 investments to date.
The ETA model, which has grown in the US amid retiring baby boomers who own profitable small and medium businesses but whose children are uninterested in taking over, involves investing in search funds. These funds are run by entrepreneur-managers called Searchers who identify and acquire a single profitable private company with positive cash flow, then become both owners and managers. Pitlane Capital plans to invest in multiple search funds to diversify across sectors such as laundries, real estate agencies, small software firms, private clinics, or plumbing companies.
Post-acquisition, the entrepreneur-managers lead operational improvements like advanced IT adoption and aggressive marketing to boost growth and profitability. Often, there is an overlap period with the outgoing founder to ensure knowledge transfer, employee retention, customer continuity, and business stability. This approach resembles a miniature private equity fund focused on CEO replacement for operational enhancement.
Search funds originated in the US in the 1980s but surged in popularity over the last decade as baby boomers aged. A 2024 Stanford University study noted a record number of search funds launched in 2023, though not all found acquisition targets within their first year. The median acquisition price is $14 million, reflecting a 7x EBITDA multiple, with funds averaging a 35% internal rate of return and 4.5-5x investment multiples. Exit strategies typically involve selling to private equity firms or competitors after growth. Despite growth, search funds still manage under $1 billion annually. The average age of entrepreneur-managers is 35, while most sellers are over 55.
Elroy, 46, co-founded Mindspace with Dan Zakai 12 years ago, serving as Chief Business Officer while Zakai was CEO. Before that, Elroy held senior roles at the remote medical services company Shachal.
