Key Insight
A search fund trades equity for capital and support. The searcher gives up meaningful ownership in return for funded search costs, acquisition capital, and a network of experienced operators. Whether that trade is worth it depends on the deal you find.
How a Search Fund Works
Stage 1 — Raising search capital: The searcher raises $400K-$600K from 10-20 investors to fund a 1-2 year search (salary, deal costs, travel). In exchange, investors receive rights to participate in the eventual acquisition.
Stage 2 — Searching: The searcher identifies, evaluates, and pursues acquisition targets, typically in the $1M-$5M EBITDA range with recurring revenue and low customer concentration.
Stage 3 — Acquisition: When a target is identified, investors are offered the opportunity to invest in the acquisition itself. The total acquisition equity is typically $3-15M, raised from the same investor pool.
Stage 4 — Operating: The searcher becomes CEO of the acquired company, operating it for a target hold period of 5-7 years.
Stage 5 — Exit: The company is sold, generating returns for investors and the searcher.
Searcher Economics
The searcher typically receives:
- A salary during the operating period
- 20-30% of the total equity "carry" (similar to a GP carry in private equity), vesting over the hold period
The carry is the searcher's primary wealth creation mechanism — if the acquisition returns well, the searcher can earn significantly more than the carry percentage of invested capital implies.
Self-Funded vs. Funded Search
Not all acquisition entrepreneurs use a traditional search fund. Self-funded searchers use SBA financing and their own capital rather than raising a search fund. Self-funded searchers retain far more equity (typically 100%) but have no investor safety net, no institutional support, and must qualify for SBA financing personally.
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