Search funds allow an individual or group of partners to become small business Operators by first sourcing (meaning “searching for”) a company for sale, and then acquiring it, operating it for several years, and, finally, exiting (or “having a significant re-cap to buy out investors”). These individuals are called Searchers. Sometimes, Searchers make their start by raising a fund. Other times, they work off of their savings or find a partner to provide them with financing. Searchers might also raise equity capital for their acquisition, use their own funds, find an innovative financing arrangement with a Seller, or put together some other kind of acquisition structure. The less a Searcher relies on outside capital, the closer the operation is to what one might consider pure Entrepreneurship through Acquisition (EtA). Whether you want to run someone else’s company or your own company, search is not something to be taken lightly.
Recent numbers from the 2018 Stanford Primer indicate that a Searcher will fail to acquire a company at least 30% of the time. That doesn't include the Searchers who aren't successful Operators. This is based on those following the traditional model who successfully raised an initial fund to finance their sourcing and acquisition stage of work. Most of these individuals or partners have a history of success; they attend elite colleges, get into the best firms in the most difficult industries, get an MBA from an elite grad school, and are used to “winning.” They don't fail often. They don't think of failing as an option when they consider ANY career. And after they convince a group of investors to back their search—a group that turns down more people than they accept, even within this nearly immaculate application pool—many envision becoming the next big case study of success in this burgeoning field, despite the fact that more than 30% of these Searchers fail in stage 1. Granted, this example is based on a single style of search and spans a specific time frame; it's not all-encompassing.
There are a lot of different styles of search. For the most part, these styles break into 4 primary categories: self-funded (true EtA), traditional, accelerator, and solo-sponsored. I will shortly cover each of these categories in this article. (For more comprehensive discussions about each of these search styles, keep an eye out for my future articles.) An example of solo-sponsored search might be a family office that supports a couple of Searchers regularly, not just a rich uncle backing their nephew. Sometimes these are called by different names. Each has its benefits and weaknesses, and choosing any one over the rest should not be an arbitrary decision. If you don’t know what life is like for all of them, then how can you impartially judge any of them?
The articles I write won’t make anybody an expert, and this site can hardly be called “up to date,” as it is only updated periodically. But I aim to provide readers with a foundation on search funds from which they can learn to speak to those in the field without feeling like, or being, a waste of time.
For a real education on the topic, visit Jim Sharpe’s blog, Stanford’s Search Fund Primer, Rick & Royce's book, or, for a more broad discussion on top of an education, Searchfunder.com. For a practical education on the topic, talk to those in the field. Talk to 30 of them. Get curious. Ask relevant questions, then listen to the answers. Make sure your investigation encompasses each style of search fund in addition to every phase of search: actively sourcing, actively operating, failure to acquire, and recent successful exit. Ask if you can intern for them. Talk to their advisers, significant others, and associates. If all else fails, there are plenty of other resources out there that can help you. For example, there are several schools and educational resources available on the internet in the form of videos, case studies, podcasts, and reviews—some sources of which are included on our resources page—and there are a few leading practitioners in the field with advice to be found in either blog or article form (consider the famous Paul Thomson article).