Mindspace co-founder launches $25 million fund to buy out aging family businesses
Pitlane Capital, headed by Yotam Alroy, will invest in search funds targeting small family businesses without successors.
Yotam Alroy, one of the founders of the co-working space company Mindspace, is bringing a new investment fund to Israel and raising $25 million for it, Calcalist has learned. The fund, called Pitlane Capital, will invest in the acquisition of small family-owned businesses that are facing the retirement of founders or lack a successor generation. The fund has already completed an initial closing with the participation of angel investors, fund managers, and family offices in Israel. Joining Alroy at the fund is Omer Ben Shach, who serves as Operating Partner and is also an investor at the fund. Ben Shach has been investing in the ETA ecosystem for more than seven years and has completed more than 60 investments in the sector.
The model, known as ETA (Entrepreneurship Through Acquisition), has been developing in recent years in the U.S. amid the retirement of the “baby boomer” generation, many of whom own profitable small and medium-sized businesses, but whose children are not interested in taking over. The fund does not invest directly in small businesses, but rather in search funds, entrepreneur-managers known as “searchers.” They locate private companies to acquire, which must be profitable and generate positive cash flow, and then become both owners and operators. Each search fund typically focuses on a single acquisition, while Pitlane will invest in multiple search funds in order to diversify across industries, which can range from laundromats and real estate brokerages to small software firms, private clinics, or plumbing companies.
After acquisition, the entrepreneur-managers lead a value-creation process within the acquired company, such as upgrading technology systems and improving marketing, to increase growth and profitability. In many cases, there is an overlap period with the outgoing founder or owner to ensure knowledge transfer, employee and customer retention, and business continuity. In effect, this is a smaller-scale version of a private equity model, focused on replacing management to drive operational improvement.
The ETA model began growing in the U.S. in the 1980s, but in the past decade, as the baby boomer generation has aged, it has gained popularity and fundraising volumes have increased significantly, along with the number of funds. According to a 2024 Stanford University study, a record number of search funds were established in the U.S. in 2023, although not all found acquisition targets in their first year of operation. The median acquisition price is $14 million, reflecting an EBITDA multiple of around 7, while reported internal rates of return average about 35%, with investment multiples of 4.5-5x.
The exit strategy is typically a sale to a private equity fund as the company grows, or a sale to a strategic competitor. Despite the growth in activity, search funds still represent a relatively small market, with less than $1 billion in annual transaction volume. Entrepreneur-managers are typically young graduates of business schools, with an average age of 35, while most business sellers are over 55. Alroy (46) co-founded Mindspace with Dan Zakai 12 years ago and served as Chief Business Officer (CBO), alongside Zakai, who was CEO. Before that, he held senior positions at the telemedicine services company Shahal.
