Search Fund

The upcoming series are going to become my framework and reminder of what crucial elements and perspectives when evaluating companies. Criteria that APAC could not offer that I should be mindful of will be stated at the end of every posts for my quick review when I look back for insights.

What are Search Funds

It is about finding one solid business that worths investors to put money in, operators to put effort on and business sellers comfortable to pass on their lifelong achievements.
Without needed to start from scratch provided both investors and operators higher degree of perceivable risks and at the same time, liquidity for business owners other than going as big as IPO. In addition, a more structured and reliable financials for the next PE acquirer.

The Acquisition Pact: Aligning All Stakeholders

At its heart, search funds work because they create alignment among stakeholders statistically from successful cases over the years:

For the searcher, the opportunity to build meaningful business ownership and real CEO experience without starting from scratch. Yes, there’s execution risk and personal commitment. But there’s also upside potential of 2-5x returns if acquired at 4-5x EBITDA and exits at 6-8x—plus equity stakes often reaching 20-30% of the acquired company.

For investors, the potential return for 20-30% IRR and 3-5x MOIC over 7-10 years. This is lower volatility than venture capital, more predictable than traditional private equity, and backed by actual business cash flows. But it requires patience: these are illiquid, long-holding-period investments with idiosyncratic risk dependent on the business and operator.

For the business seller, transition to a capable operator committed to growth rather than financial engineering. The seller often retains partial upside through earn outs or seller financing—aligning incentives if the business thrives post-acquisition.

This mutual alignment is the secret sauce. When all parties benefit from sustainable business growth, execution improves, conflicts diminish, and value creation accelerates.

Key steps in Search Funds

Search funds involve a multi-year journey with distinct phases: preparing thesis, raising search capital, sourcing deals (Designing and executing sourcing framework), conducting due diligence, structuring financing, closing an acquisition, and operating as CEO for 5-10 years.

Financing would be the biggest challenge I perceive for the moment as there’s no SBA loan available. Balance between deal size and predictability will be a big consideration for me.