LenderHawk analysis. Not affiliated with or endorsed by Search Funded: The ETA Podcast.
Kevin Hong recounts his path from entrepreneur to traditional searcher, the acquisition of a data center services business, and the governance conflict that led to his termination as CEO. He also explains how that experience shaped Caprae Capital’s thesis, his approach to deal flow, and the survey he built to collect feedback from terminated searchers.
Aspiring searchers, ETA investors, and board members who want a candid view of how governance, investor structure, and operator autonomy can shape search outcomes.
A fragmented cap table with 22-33 investors can make it much harder to remove a searcher, but it can also create a more complex governance environment.
Seller-operator conflicts can escalate into board action when the seller retains influence and disagrees with the CEO’s go-to-market strategy.
A searcher who has already built and sold companies may prefer search because it offers a way to buy a business without repeating zero-to-one startup risk.
Data center services were exposed to a demand shock when AI infrastructure drove energy constraints and reduced server refresh cycles.
Board meetings that repeatedly revisit the same questions can signal governance dysfunction rather than diligence, especially when growth is still strong.
Some search-fund participants view the industry as having shifted from mentorship-heavy support to a more marketing-driven, case-study-led ecosystem.
A terminated searcher can turn the experience into a research asset by collecting peer data on terminations, lawsuits, and board/investor behavior.
Caprae’s operating style emphasizes aggressive accountability, real-time KPI visibility, and reduced information asymmetry to minimize internal politics.
Hong argues that many finance firms win by borrowing brand, narrative, and credibility rather than by proving a fundamentally unique product. He applies the same logic to search-fund fundraising and board perception.
When to use: Use this lens when evaluating how investor trust, reputation, and storytelling shape capital formation and governance.
Hong’s Caprae thesis is that AI-enabled founders should think at the industry level, controlling deal flow and system economics instead of only shipping a product. The core advantage becomes the ability to shape the market architecture itself.
When to use: Use this when a business can win by owning distribution, sourcing, or ecosystem design rather than single-asset operations.
Hong describes his operating model as minimizing information asymmetry and centralizing fast, transparent communication so politics cannot thrive. The goal is to keep everyone operating from the same real-time facts.
When to use: Use this in high-growth organizations where speed and alignment matter more than hierarchical process.
Kevin Hong’s cap table included 22-23 investors at acquisition, later expanding to 33 people, with the largest investor at only 8-9%.
He says the fragmented structure was intentional to make it difficult to remove him as CEO.
His search lasted about one year before he acquired a data center services business.
He contrasts this with his prior operating background and his desire to de-risk from startup-style zero-to-one work.
The acquired business grew about 40-45% year over year for roughly 12 months before the later slowdown.
He uses this to argue that operations were strong before the AI-related market shift.
Sales dropped by 50% for two consecutive quarters after the AI buildout changed customer behavior in the data center market.
He attributes the drop to customers delaying server refreshes as GPU-driven energy demand tightened capacity.
Hong interviewed or surveyed roughly 32-33 terminated searchers, with about 233 full survey completions and 600-700 total opens/partial responses.
He built the study to compare investor and board behavior across terminated searcher experiences.
He says about 26-27% of the terminated searchers in his sample were Black CEOs, which he viewed as disproportionately high.
This was one of the most striking findings from his survey and interviews.
He says he worked with 14 out of 40 search-fund investors in some capacity through his cap table, giving him unusually broad exposure to the ecosystem.
He uses that breadth to explain why his survey rankings felt directionally accurate.
Caprae had already closed over $50 million in lower middle market PE deals since 2025 at the time of the interview.
This is part of how the host frames Hong’s post-search career trajectory.
Structure governance before closing by thinking through how a seller, board, and searcher can block one another later.
Why: Hong’s conflict shows that post-close power dynamics can matter as much as the deal itself.
If you want to preserve operating autonomy, diversify your investor base rather than relying on a few large holders.
Why: A more fragmented cap table can make a forced removal harder to execute.
Build your go-to-market around performance and outcomes rather than relationship theater when the product is complex and measurable.
Why: Hong believes customers ultimately reward execution, not golf outings or trade-show camaraderie.
Create direct feedback channels from CEO to board, not just the reverse.
Why: He argues that board members improve when they are also subject to structured critique.
Use transparent KPI reporting and fast communication to reduce politics inside a scaling business.
Why: Hong says information asymmetry is what allows internal politics to take hold.
Lean into the uncomfortable conversations early instead of avoiding them.
Why: He views difficult discussions as essential to both personal growth and organizational clarity.
Hong bought a data center services company and initially grew it about 40-45% year over year. When AI infrastructure raised energy demand and customers delayed server refreshes, sales fell by 50% for two quarters and the board eventually removed him.
Lesson: Even a strong growth story can break when a market shift changes customer behavior faster than the operator can reposition.
Before closing, Hong deliberately built a very fragmented investor base, eventually reaching more than 20 and later 30+ holders with no dominant owner. He believed this structure would make it difficult for any coalition to oust him as CEO.
Lesson: Governance design can be a defensive tool in search, but it also increases coordination complexity after close.
After being fired, Hong interviewed and surveyed more than 30 terminated searchers and collected several hundred survey interactions. He used the project to surface patterns in board behavior, terminations, and perceived fairness across the ETA ecosystem.
Lesson: Post-mortem research can convert a painful experience into ecosystem intelligence and brand-building.