Why Search Funds Are the Hottest Buyer in Small Business M&A Right Now

Five years ago, most business owners had never heard of a search fund. Today, it's one of the most common buyer types in small business M&A. The growth has been remarkable — and it's changing the market for sellers in meaningful ways.

If you own a business doing $1M–$5M in SDE or EBITDA, understanding the search fund trend isn't optional anymore. These buyers are actively looking for companies like yours.

What's Driving the Search Fund Boom

Business School Adoption

The search fund model started at Stanford GSB and Harvard Business School decades ago. But it used to be niche — a handful of graduates each year would take the path. That's changed dramatically.

Today, more than 50 business schools globally have dedicated entrepreneurship through acquisition (ETA) courses, clubs, and mentorship programs. Schools like Stanford, HBS, Booth, Kellogg, Wharton, Columbia, and dozens of international programs are producing hundreds of new searchers annually.

The ETA path has gone from an alternative career track to a mainstream one. For ambitious MBA graduates, buying and running a small business is now seen as a legitimate alternative to consulting, banking, or big tech.

Proven Returns

Search fund investor returns have been consistently strong. Stanford's research on search fund outcomes — the most comprehensive dataset available — shows median returns of roughly 4–5x invested capital and IRRs above 30%. Those numbers attract more investors, which funds more searchers, which drives more deal activity.

The data also shows that the model works across market cycles. Search fund acquisitions during the 2008–2010 downturn performed comparably to those in boom years, which gives investors confidence that the asset class is resilient.

Capital Availability

The investor base for search funds has expanded dramatically. Early search fund investing was dominated by a small group of Stanford and HBS alumni. Today, the investor ecosystem includes:

• Dedicated search fund investors who back 10–30+ searchers per year
• Family offices looking for direct investment opportunities
• Former search fund CEOs reinvesting their returns into the next generation
• Institutional investors allocating small portions of their portfolio to the asset class
• International investors backing searchers in Latin America, Europe, and Southeast Asia

More capital means more searches get funded, which means more competition for quality businesses.

The Self-Employed Economy

The pandemic and post-pandemic economy shifted how ambitious professionals think about work. Running your own company — with institutional backing and a proven playbook — appeals to people who want autonomy, economic upside, and meaningful work. Buying an existing business through a search fund de-risks the entrepreneurial leap compared to starting from scratch.

How This Affects Sellers

More search fund buyers in the market has several practical implications:

More Buyer Competition for Your Business

If you're running a well-managed business in the search fund sweet spot ($1M–$5M SDE), you have more potential buyers than you did five years ago. More buyers means more competitive tension, which can drive better pricing and terms.

When I run a sell-side process for a client in this size range, search fund buyers are consistently in the mix alongside individual buyers and smaller PE groups. Having multiple buyer types compete is how you maximize value.

Higher Buyer Quality

The average search fund buyer in 2026 is more prepared than their predecessors. They've had formal ETA training, worked with experienced investors, and studied hundreds of deals before approaching your business. They come with thoughtful investment theses, clear operational plans, and realistic expectations about what they're buying.

That doesn't mean every searcher is great — but the overall quality of the buyer pool has improved as the model has matured.

More Sophisticated Deal Processes

Search fund buyers and their investors have standardized many aspects of the deal process. LOI templates, diligence checklists, quality of earnings approaches, and legal documentation have become more professional over the past several years. This benefits sellers because it means fewer surprises, more predictable timelines, and clearer deal terms.

Seller Financing Is Still Standard

Despite the growth in capital availability, most search fund deals still include a seller note — typically 10–20% of the purchase price. The investor community views seller financing as alignment: if you're willing to carry a note, it signals confidence in the business. This hasn't changed and probably won't.

If seller financing is a dealbreaker for you, search funds may not be your best buyer pool. Private equity or strategic acquirers typically offer more cash at close.

Industries Where Search Funds Are Most Active

Search fund buyers cluster in specific industries. The common thread is essential services with recurring revenue, low technology disruption risk, and fragmented competitive landscapes:

Business services — IT managed services, HR/staffing, janitorial, waste hauling, facility maintenance, professional services

Healthcare services — veterinary, dental, behavioral health, home health, physical therapy, specialty clinics

Home services — HVAC, plumbing, pest control, landscaping, roofing (typically the larger operators in this space)

Tech-enabled services — vertical SaaS, data management, compliance software, niche marketplaces

Industrial/manufacturing — specialty manufacturing, distribution, value-added resellers

Education — tutoring centers, test prep, workforce training, early childhood

If your business is in one of these sectors, you're squarely in the search fund strike zone.

The Self-Funded Search: A Growing Variant

Not all searchers raise traditional search fund capital. A growing number of buyers are running self-funded searches — financing their search period out of pocket and raising acquisition capital deal-by-deal. Self-funded searchers have some distinct characteristics:

More flexible on deal size. Self-funded searchers may look at smaller deals ($500K–$2M SDE) that don't interest traditional search funds.

More SBA-dependent. Without a committed investor base, self-funded searchers rely more heavily on SBA 7(a) loans for acquisition financing. This means more SBA-specific dynamics in the deal process.

Wider range of experience. Self-funded searchers come from diverse backgrounds — some are former operators, some are career changers, some are serial entrepreneurs. The quality range is wider than traditional searchers.

Faster growth. The self-funded search community has grown even faster than traditional search funds, driven by online communities, podcasts, and the lower barrier to entry (no need to raise search capital first).

International ETA: A Global Trend

Search funds aren't just a U.S. phenomenon anymore. The model has expanded rapidly into:

• Latin America — Brazil, Colombia, Mexico have active search fund ecosystems backed by both local and U.S. investors
• Europe — Spain, UK, France, Germany, and the Nordics have growing searcher communities
• Southeast Asia — Emerging search fund activity in Singapore, Philippines, and Indonesia

For U.S. business owners, this matters mainly because international searchers sometimes target U.S. businesses, adding to your buyer pool.

What This Means for Your Exit Planning

If you're a business owner thinking about selling in the next 1–3 years, the search fund boom is worth factoring into your planning:

You have more buyer options. Don't assume your only path is a strategic sale or listing with a broker who focuses on individual buyers. Search fund buyers are a real, well-capitalized buyer category.

Your business doesn't need to be huge. Search funds are specifically looking for businesses that PE firms consider too small. The $1M–$5M SDE range that PE often ignores is the search fund sweet spot.

Prepare for the process. Search fund diligence is thorough. Clean financials, documented processes, and a team that doesn't depend entirely on you will make your business attractive to this buyer pool.

Run a competitive process. The best outcomes for sellers come from having multiple interested buyers at the table. Include search fund buyers in your process alongside other buyer types. Competition drives value.

Get advice on deal structure. Search fund deals have specific structural components — seller notes, earnouts, working capital pegs, transition agreements — that need to be negotiated carefully. An experienced advisor who understands search fund deal dynamics can make a material difference in your outcome.

The Bottom Line

The search fund and ETA movement isn't a fad. It's backed by institutional capital, proven returns, and a growing pipeline of motivated, capable buyers. For business owners in the $1M–$5M SDE range, this trend is creating more options and more competitive tension than ever before.

If you want to understand how search fund buyers would evaluate your business — and how to position yourself for the best outcome — book a call and let's talk through your situation.