How does the search fund model differ from traditional private equity?

Search funds and traditional private equity share some similarities but differ fundamentally in philosophy, process, and structure. In traditional private equity, the fund identifies and evaluates specific companies first, then recruits experienced management teams to run them. The model is capital-driven—large institutional funds deploy hundreds of millions or billions across portfolios of companies. Search funds invert this: investors bet on the entrepreneur first, with the specific business to be determined later. This is people-driven rather than capital-driven. The target market differs significantly. Private equity typically focuses on larger companies with EBITDA above €5-10 million where institutional-scale capital can be deployed. Search funds target the €1-4 million EBITDA range, filling a market gap where businesses are too small for traditional PE but too large for individual entrepreneurs. The holding period also differs—private equity funds typically operate on 3-5 year timelines driven by fund lifecycles and return requirements. Search funds have 5-10 year horizons without forced exit timelines, allowing for patient value creation. Management involvement represents another key distinction. Private equity portfolio company CEOs are experienced executives recruited specifically for their operational track record. Search fund CEOs are relatively inexperienced entrepreneurs learning on the job with heavy investor mentorship. This creates different risk/return profiles—search funds accept higher execution risk in exchange for potentially higher returns and the development of new management talent. Governance structures differ too. Private equity firms often hold majority stakes and exert strong control, sometimes replacing management if performance falters. Search fund investors remain minority shareholders individually, with the searcher retaining operational autonomy while benefiting from board-level strategic guidance. The alignment of interests is stronger in search funds because the CEO has meaningful skin in the game from day one, whereas PE-recruited CEOs typically receive management incentive packages but less direct equity. Fee structures also vary—traditional PE charges 2% annual management fees plus 20% carried interest on profits. Search funds have no management fees and the searcher's equity stake functions as the performance incentive. Finally, the community and culture differ markedly. Private equity is highly competitive, with firms guarding deal flow and proprietary strategies. Search funds foster a collaborative ecosystem where investors and searchers actively help each other, recognizing that knowledge sharing benefits everyone.