Forgoing the traditional corporate or startup route, more business school graduates from top universities and mid-career professionals are pursuing their goals through search funds: raising capital, acquiring established companies, and stepping in as owner-operators. For business brokers, the growth of “entrepreneurship through acquisition” represents an increasingly important sector of the buyer landscape. Search funds have transformed from a niche experiment to a legitimate force in the lower middle market, and brokers who understand it will be better positioned to match retiring owners with qualified, motivated successors.
According to Axial.net, a leading middle-market deal platform, in 2025, 13% of closed deals on Axial were done by search funds. That number is up from 6% in 2022, underscoring how search funds are becoming more relevant in the lower middle market acquisition space.[1]
A search fund is an investment vehicle that enables an entrepreneur (a “searcher”) to raise capital from investors to find, acquire, and operate a privately held company. The searcher looks for a profitable, often founder-led business with strong foundations and room for future growth. After the deal goes through, the searcher-entrepreneur takes over as CEO and runs the company full-time.
There is an appeal to the model for all involved: for owners, they get a committed owner-operator to continue the business’s legacy. For brokers, when sellers do not necessarily want to sell to a PE firm, they get a buyer that might be a better fit for their client. For entrepreneurs, search funds provide a fast-track to business ownership and leadership without the inherent risks of a startup. For investors, they offer access to private company investments under the guidance of a hands-on operator they know personally.
In a traditional search fund, the searcher raises “search capital” (typically between $300,000 and $600,000) from a group of investors. This capital supports a full-time search lasting up to two years. Once the searcher finds a suitable company, usually firms with enterprise values between $5 million and $50 million and $1.5 to $5 million EBITDA, the same investors provide acquisition funding. According to Stanford’s 2024 Search Fund Study, the median purchase price among these acquisitions is approximately $14.4 million.[2] After an acquisition, the searcher becomes the CEO, while the investors serve as the board of directors.
The entrepreneur then focuses on operating and growing the company over a five-to-seven-year time span, after which both parties may seek to sell and exit, do a recap or a management buyout. Search funds have historically had remarkable returns. Per the 2024 Stanford Study, across 681 analyzed search fund acquisitions, the aggregate pre-tax internal rate of return (IRR) was 35.1%, with a 4.5x average return on invested capital.[2]
Some examples of the search fund model’s successes: Jim Southern raised a search fund and acquired a printing company, later delivering a 24x return to his investors.[3] Two young Stanford alumni purchased a roadside assistance firm via their search fund, and that evolved into Asurion, a global leader in mobile protection services generating billions in annual revenue.[4] Another team, Jamie Turner and Kirk Riedinger, acquired Alta Colleges in 1987 and expanded it from $4 million to more than $400 million in revenue over two decades.[5]
The paragraph above relates specifically to traditional search funds. In a self-funded search, searchers use their own savings, SBA loans, and/or seller financing to acquire smaller companies, often with enterprise values between $1 million and $5 million. Because self-funded searchers use their own capital rather than investors’ capital, they usually conduct their searches part-time and take on more risk. In exchange, they retain majority ownership of the acquired business. Deals typically have longer holding periods and less emphasis on formal exits.
Often, search funds (both traditional and self-funded) are not the highest bidders. Sellers usually choose search funds because of a strong buyer-seller fit, and the desire to pass their legacy on to the person who will personally be running the business (as opposed to a large PE fund or strategic acquirer). Searchers usually prioritize retaining employees and moving/living wherever the business is located.
With search funds, owners typically have greater flexibility in their deal structure and do not have to remain involved for a long time after the acquisition (which many different buyers typically request) if that is not desired. Also, given the usual success of the search fund model and mentorship from investors who were successful searchers themselves, the owner’s rollover equity is likely to grow significantly in the traditional search fund model.
A common question on a broker’s mind is whether the searcher has funding to get the deal done. Like an independent sponsor, a traditional search fund raises capital on a deal-by-deal basis, starting after the LOI is signed during diligence. However, that’s where the similarities end. Traditional search funds already have an investor base/LPs who have committed capital and invested in the search phase. Traditional search fund investors have made hundreds of acquisitions through their searchers (681, according to the 2024 Stanford Study).[2]
How to validate a searcher’s ability to acquire / How to screen searchers
As a broker, there are a few things that can be done to validate and increase the deal’s chance of getting done with a search fund:
With the growing number of people raising and launching search funds and the increasing number of search fund acquisitions, brokers and intermediaries could benefit immensely by working with this group of buyers.
As the landscape of business ownership continues to evolve, search funds have firmly established themselves as a meaningful and reliable buyer class in the lower middle market. With more search funds being launched each year, and with the model’s track record of successful transactions and long-term value creation, brokers and intermediaries should screen for searchers with strong investor backing and include them in their processes when relevant for their clients. In many cases, the right searcher may not just be a buyer, but the best successor for the business.
Conrado Oliveira
https://www.linkedin.com/in/conradodco/
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