Search Fund
Search funds are a compelling investment vehicle designed for investors seeking to partner with highly motivated entrepreneurs to acquire and grow privately held businesses. This model begins with identifying promising searchers—driven individuals, often with strong business acumen and leadership potential—who are backed to find and acquire a single business. The targeted companies are typically established, profitable, and owner-managed, often facing a succession challenge. For investors, search funds offer a unique opportunity to be involved in the entire lifecycle: from providing mentorship and strategic guidance during the search phase to supporting operational growth after acquisition. With the potential for significant returns and alignment of interests between searchers and investors, search funds present a dynamic way to diversify portfolios and
invest in the transformative power of entrepreneurial leadership.
The Process
1. Raise Capital
The initial search capital is used to fund the costs of the search process, including; amongst other things; salaries, subscriptions, and travel costs. A solo search would generally raise between $300k and $450k with partnered searchers generally raising between $500k – $700k.
2. Searching & Acquisition
The searcher(s) will build a funnel of possible deal opportunities through networking with brokers as well as proprietary outreach. Once a suitable acquisition target has been identified, the searcher(s) will negotiate the terms of the deal, present the deal to the investors to raise the equity capital required to transact, and acquire the company. Investors in the search fund have a pre-emption right to invest in the transaction and their search capital will roll into the transaction at 1.5x. Investment in the transaction takes the form of a mix of preferred and ordinary equity, with the preferred equity generally offering a priority return between 6% and 8%.
3. Operating & Growth
The searcher(s) will take the role of CEO, learn the business and ultimately begin the work to grow the business. A selection of investors as well as industry experts will take board positions ensuring proper governance, advice and oversight.
4. Exit & Return of Capital
When company and industry conditions are suitable, the company will be sold which will allow investors to cash out. The searcher(s) will share in the gains since acquisition with their percentage share generally ranging between 18% – 35% depending on the net IRR being returned to investors. For the searcher(s) to realise the maximum share, returns for investors must reach an IRR of 35%.