Frequently Asked Questions

Question 1

What is a search fund and how does it work?

Accepted Answer

A search fund is an investment vehicle that allows aspiring entrepreneurs to raise capital from investors to search for, acquire, and operate a privately held company. Created in 1984 at Stanford University, the model provides a structured path for relatively inexperienced entrepreneurs with limited personal capital to become CEOs of established businesses. The process works in distinct phases: First, the searcher raises initial capital (typically $300,000-$500,000) from 15-20 investors to fund

Question 2

What is the history and origin of the search fund model?

Accepted Answer

The search fund model was conceived in 1984 at Stanford University Graduate School of Business by Professor Irving Grousbeck, who served as the Director of the Center for Entrepreneurial Studies. The concept emerged when two MBA students approached Professor Grousbeck with an entrepreneurial ambition: they wanted to become CEOs of established companies but lacked both the capital to acquire a business and the track record to secure traditional CEO positions. Professor Grousbeck designed an innov

Question 3

What are the typical phases of a search fund?

Accepted Answer

A search fund progresses through three distinct phases, each with specific objectives and timelines. The first phase is the fundraising and search phase, which typically lasts 18-24 months. During this period, the searcher raises initial capital of approximately $350,000-$500,000 from 15-20 investors to cover personal salary, office expenses, travel costs, and professional fees. The searcher then systematically contacts between 2,500 and 5,000 potential target companies, conducts meetings with b

Question 4

What are the typical returns and performance metrics for search funds?

Accepted Answer

Search funds have demonstrated strong historical performance, making them an attractive asset class for investors. According to Stanford's 2024 study analyzing 681 qualifying search funds in the United States and Canada, the aggregate pre-tax internal rate of return (IRR) was 35.1%, with an aggregate pre-tax return on invested capital of 4.5 times. This means that for every dollar invested, investors received $4.50 back before taxes. These returns compare favorably with traditional private equit

Question 5

Who is a typical searcher and what background do they have?

Accepted Answer

The typical searcher profile has evolved over the four decades of the search fund model but maintains consistent core characteristics. According to IESE's 2018 study, the average searcher is approximately 35 years old, though many are in the 30-40 age range, making them younger than traditional business acquirers but with sufficient professional experience to manage operations. About 90% hold MBA degrees from leading business schools, with Stanford, Harvard, Kellogg, and IESE being particularly

Question 6

What types of companies do search funds typically target?

Accepted Answer

Search funds target a specific segment of the market characterized by established, profitable small-to-medium enterprises that fall between individual entrepreneurial capacity and institutional private equity interest. The ideal target company generates EBITDA (earnings before interest, taxes, depreciation, and amortization) between €1 million and €4 million annually, with €2 million being the sweet spot. Revenue typically ranges from €5 million to €40 million, though €10-15 million is most comm

Question 7

How much initial capital does a searcher need to raise?

Accepted Answer

The initial fundraising phase requires searchers to raise between €300,000 and €500,000 from approximately 15-20 individual investors. In France and Europe, €360,000 is a common target, while North American search funds may raise closer to $500,000. This capital serves multiple purposes during the 18-24 month search period. The largest component covers the searcher's personal salary and benefits, allowing them to focus full-time on finding the right acquisition target without financial stress. T

Question 8

What is the typical ownership structure in a search fund after acquisition?

Accepted Answer

The ownership structure of a search fund-backed company is carefully designed to align incentives between the searcher and investors while rewarding the entrepreneur for value creation. At the time of acquisition, the searcher typically receives 25-30% of the company's equity, though this can vary based on negotiation and the specific deal structure. This equity is often granted in tranches or stages to incentivize performance. In the traditional American model, searchers can earn up to 25% thro

Question 9

How long does the search phase typically last and what does it involve?

Accepted Answer

The search phase typically lasts between 18 and 24 months, though some searchers find suitable targets sooner while others may extend slightly longer. This period is characterized by intensive, systematic outreach and relationship building. Searchers contact between 2,500 and 5,000 potential target companies, using databases, industry contacts, business brokers, and personal networks. The response rate is challenging—only 3-5% of contacted companies express genuine interest in discussions. This

Question 10

What happens if a searcher fails to find a company to acquire?

Accepted Answer

Approximately 20% of search funds fail to complete an acquisition within the search period, resulting in a complete loss of the initial search capital for investors. This represents one of the key risks of the search fund model. Several factors contribute to failed searches: the searcher may be too selective or unrealistic in target criteria, market conditions may make valuations prohibitively expensive, promising opportunities may fall through when sellers decide not to proceed, or the searcher

What is a search fund and how does it work?

What is the history and origin of the search fund model?

What are the typical phases of a search fund?

What are the typical returns and performance metrics for search funds?

Who is a typical searcher and what background do they have?

What types of companies do search funds typically target?

How much initial capital does a searcher need to raise?

What is the typical ownership structure in a search fund after acquisition?

How long does the search phase typically last and what does it involve?

What happens if a searcher fails to find a company to acquire?

Let's talk

Interested in the opportunities offered by Transmitium?

We use cookies

Frequently Asked Questions

What is a search fund and how does it work?

What is the history and origin of the search fund model?

What are the typical phases of a search fund?

What are the typical returns and performance metrics for search funds?

Who is a typical searcher and what background do they have?

What types of companies do search funds typically target?

How much initial capital does a searcher need to raise?

What is the typical ownership structure in a search fund after acquisition?

How long does the search phase typically last and what does it involve?

What happens if a searcher fails to find a company to acquire?

Let's talk

Interested in the opportunities offered by Transmitium?