Search Fund Jargon Translator
Clear, plain-English definitions of ETA and dealmaking terms, with practical notes and examples.
Search Fund
An investment vehicle through which an entrepreneur (the 'searcher') raises a small amount of capital from investors to search for, acquire, and operate a privately held company.
Entrepreneurship Through Acquisition (ETA)
The process of becoming an entrepreneur by acquiring and leading an existing business, rather than starting one from scratch.
Debt Service Coverage Ratio (DSCR)
A measure of the cash flow available to pay current debt obligations. It is calculated by dividing the company's EBITDA or operating cash flow by its total debt service (interest + principal).
Multiple on Invested Capital (MOIC)
A metric that measures the total value returned to an investor relative to the amount of capital they invested. It does not account for the time value of money.
Internal Rate of Return (IRR)
The annualized rate of return that makes the net present value (NPV) of all cash flows (both positive and negative) from a particular investment equal to zero.
Quality of Earnings (QoE) Report
An independent financial due diligence report prepared by an accounting firm to analyze a company's historical earnings and assess their sustainability and accuracy.
Seller Note
A loan provided by the seller to the buyer to cover a portion of the purchase price. It demonstrates the seller's confidence in the business's future success.
Representations and Warranties (R&W)
Legal statements of fact made by the seller in the purchase agreement about the condition of the business. A breach can lead to financial claims by the buyer.
Working Capital Peg
A negotiated target for the level of net working capital that the seller must leave in the business at closing. The purchase price is adjusted if the actual amount is different.
Earn-out
A form of deferred payment to the seller, contingent on the business achieving certain performance milestones after the closing.