How Search Funds Work

What Is a Search Fund?

A search fund is a vehicle in which an entrepreneur (the "searcher") raises capital from investors to find, acquire, and then personally run a single established business. It's a way for talented operators who lack the capital to buy a business on their own to become owner-CEOs — and for investors to back that operator in acquiring a company. The model has produced strong long-term returns and has become a well-established path within Entrepreneurship Through Acquisition.

The Two-Phase Model

Search funds work in two distinct stages:

• Phase 1 — Search capital: the searcher raises a relatively small amount from investors to fund a full-time search (typically up to a couple of years) for a business to buy. This covers the searcher's salary and deal costs.
• Phase 2 — Acquisition capital: once a target is found, investors are given the right to fund the acquisition. The same investors usually have the option (not obligation) to provide the equity to buy the business, alongside debt such as an SBA or bank loan.

The searcher then runs the acquired business as CEO, aiming to grow it and eventually exit at a higher value.

How the Economics Work

Investors in the search capital typically earn the right to invest in the eventual acquisition, often on favorable terms (their search investment may convert at a step-up). The searcher earns equity — commonly a meaningful stake that vests in tranches: a portion for completing the acquisition, a portion over time as CEO, and a portion tied to performance/return hurdles. This structure rewards the searcher for finding a good business, operating it well, and delivering returns to investors.

Who Search Funds Are For

The classic searcher is a capable operator — often with an MBA and management experience — who wants to run a company but doesn't have the personal capital to buy one. Search funds suit people who are willing to commit years to searching and then operating, who can attract investor backing, and who want to be a hands-on owner-CEO rather than a passive investor. It's demanding: the search itself can be long and uncertain, and not every search results in an acquisition.

Search Funds vs. Other Paths

Compared with buying a business with your own capital, a search fund trades some ownership and independence for access to capital, mentorship, and shared risk — investors fund the search and the purchase, but they take equity and a governance role. Compared with private equity, a search fund is a single searcher acquiring one company to run personally, rather than a firm managing many deals. For the right operator, it's a way to acquire a larger, better business than they could alone.

Pros and Cons

Advantages

• Access to capital to buy a business without large personal funds
• Investor mentorship and a board of experienced backers
• Potential to acquire a larger, higher-quality business

Trade-offs

• You give up equity and some control to investors
• The search is long, full-time, and may not succeed
• Significant pressure to perform and deliver investor returns

Frequently Asked Questions

Martin Navarro · Business Broker & M&A Advisor

Martin Navarro advises business owners across Los Angeles, Ventura, and Southern California on selling, buying, and valuing privately held companies. A U.S. Marine Corps veteran with dual CSUN degrees in Business Management and Accounting, he brings hands-on transaction experience and a straight-talking, numbers-first approach to every engagement. Bilingual in English and Spanish.