What is a search fund and how does it work?

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 a search period of up to 24 months. During this time, the entrepreneur is compensated while systematically contacting and evaluating potential acquisition targets. Once a suitable company is identified, the same investors are invited to participate in the acquisition financing, typically investing significantly more to purchase the business. The searcher then becomes CEO and operates the company for 5-10 years before exit. Throughout this period, investors provide mentorship and guidance, creating a unique partnership between capital and operational expertise.