What is a search fund?
A search fund is a vehicle in which an entrepreneur, called a searcher, raises a small amount of capital from investors to pay for the search for a single private company to acquire, and then becomes the CEO of that company.
Key takeaways
- The searcher is funded to find one company, not to run a portfolio.
- Investors usually have the right, but not the obligation, to invest in the acquisition.
- If the search succeeds, the searcher leads the company and typically earns equity over time.
- Self-funded searches and independent sponsors are related but different routes.
How a traditional search fund works
A searcher raises search capital from a group of investors. That money pays the searcher's modest salary and the costs of finding a target, such as travel, legal fees and data. The search phase is commonly measured in years rather than months.
When the searcher finds a company, they negotiate a purchase and go back to the same investors to raise acquisition capital, usually alongside bank or SBA debt. Investors generally hold a right to participate, so they can decide deal by deal.
What the searcher gets
After the acquisition the searcher runs the business as CEO. Compensation typically combines a salary with equity that vests over time and with performance, so the outcome depends on growing the company's value.
Search funds compared with other routes
A self-funded search uses the searcher's own money and usually relies more on seller financing and SBA loans. An independent sponsor has no committed fund and raises capital deal by deal. Each route trades control, speed and dilution differently.
Frequently asked questions
It varies widely. Many searchers spend a year or more sourcing and evaluating companies before they close, and some searches end without an acquisition.
No. Many searchers come from MBA programs, but the requirement is credibility with investors and sellers: relevant experience, a clear acquisition thesis and the ability to run a company.
Through personal introductions, ETA (entrepreneurship through acquisition) programs and communities such as WhoBoughtWho, where investors post what they look for and searchers can ask for mentorship.
Last reviewed . General information, not legal, tax or financial advice.