What Is a Search Fund? What Business Owners Should Know

If you own a business doing $1M–$5M in revenue, there's a growing chance you'll hear from someone who introduces themselves as a "search fund" buyer. These emails and LinkedIn messages have exploded over the past few years — and for good reason.

Search funds are one of the most active buyer types in small business acquisitions right now. Understanding how they work helps you evaluate whether a searcher is a serious buyer or just another tire-kicker.

How Search Funds Work

A search fund is a small investment vehicle where an individual — the "searcher" — raises capital from a group of investors to find, acquire, and operate a single small business. The concept originated at Stanford and Harvard business schools in the 1980s, and it's gone mainstream.

The model works in two phases:

Phase 1: Search Capital

The searcher raises a small amount of money (typically $400K–$600K) from 10–20 investors. This capital funds their salary and expenses while they spend 18–24 months searching full-time for a business to buy. They're looking at hundreds of companies to find the right one.

Phase 2: Acquisition Capital

Once the searcher finds a target, they go back to their investors (and sometimes new investors) to raise the capital needed to buy the business. Total acquisition funding typically ranges from $3M–$20M, depending on the size of the business.

After closing, the searcher becomes the CEO. They run the business day-to-day, with their investors providing guidance and board oversight. The searcher typically earns 20–30% of the equity over time through a structured earnout — their upside is tied to how well the business performs.

What Search Funds Look For

Searchers are picky. They evaluate hundreds of businesses to buy one. Here's what makes your business attractive to a search fund buyer:

$1M–$5M in SDE or EBITDA. This is the sweet spot. Below $750K, the economics don't work for most searchers. Above $5M, they typically can't raise enough capital to compete with private equity.

Recurring or repeat revenue. Service contracts, subscriptions, long-term customer relationships. Searchers are first-time CEOs — they need a revenue base they can count on while learning the business.

Low owner dependence. A business that falls apart without the founder is a non-starter. Searchers need to step into the CEO role and have the business keep running.

Stable or growing industry. Searchers aren't turnaround artists. They want businesses in industries with steady demand and room for growth.

B2B preferred. Most searchers gravitate toward business services, tech-enabled services, healthcare services, and niche manufacturing. B2B businesses tend to have higher switching costs and more predictable revenue.

Simple, understandable business model. The searcher is going to run this company. They prefer businesses where the value proposition is clear and the operations can be learned within the first year.

What Search Funds Pay

Search fund multiples typically fall in the same range as individual buyer deals, which is generally lower than private equity:

• $1M–$2M SDE/EBITDA: 3x–5x
• $2M–$4M SDE/EBITDA: 4x–6x
• $4M+ SDE/EBITDA: 5x–7x

These ranges vary by industry, growth rate, and deal quality. Businesses with strong recurring revenue, management teams, and growth potential command the upper end.

Financing structure: Search fund deals are typically funded with a mix of investor equity (60–70%) and seller financing or SBA debt (30–40%). Expect a conversation about seller financing — most searchers include some seller note in their proposed deal structure.

How Search Funds Differ From Other Buyers

vs. Private Equity

PE firms buy larger businesses ($1M+ EBITDA minimum, often much higher), use professional deal teams, and plan to buy multiple companies. Search funds are smaller, the searcher is personally invested as the future CEO, and they're buying one business to run for 5–7 years.

vs. Individual Buyers

Individual buyers (someone using personal savings or an SBA loan to buy a business) overlap significantly with search funds in deal size. The difference is backing: search fund buyers have institutional investors behind them, which means more capital, more sophistication, and usually faster diligence.

vs. Strategic Acquirers

Strategic buyers are existing companies in your industry. They buy for synergies — customers, capabilities, geographic expansion. Search fund buyers are financial buyers who want to operate your business as a standalone entity.

What to Watch Out For

Not every search fund buyer is created equal. Here are things to consider:

Experience level. Most searchers are in their late 20s or 30s with MBA degrees and a few years of work experience — but they've never run a business. Some are exceptional operators who will grow your company. Others are in over their heads. Ask about their background, their investors, and their operational plan.

Investor quality matters. A searcher backed by experienced search fund investors will have better guidance, more capital for growth, and a higher probability of success. Ask who their investors are and whether those investors have backed previous search funds.

Exclusivity pressure. Searchers often push for exclusivity early in the process because their search capital has a time limit. Be cautious about granting long exclusivity periods before a firm LOI.

SBA dependency. Some search fund deals rely on SBA 7(a) loans for a significant portion of the financing. SBA deals can close, but they add complexity and timeline risk. Understand the financing structure early.

Earnest money. A serious searcher will put up meaningful earnest money (typically 3–5% of the purchase price) when signing an LOI. If they won't, question their commitment.

Why You're Getting More Outreach From Searchers

The search fund model has grown dramatically. In 2010, maybe 30-40 new search funds launched per year. By 2025, that number was over 300. Business schools have formalized search fund curricula. Investor networks have expanded. The model has proven itself with strong returns.

This growth means more searchers competing for the same pool of attractive businesses. For you as a seller, that's good news — more buyers means more competition and better terms.

Should You Sell to a Search Fund?

A search fund buyer can be an excellent option if:

• Your business is in the $1M–$5M SDE/EBITDA range
• You want someone who will personally run and care about the business
• You're comfortable with some seller financing
• You value a buyer who's committed to the long term (5–7 years) rather than a quick flip
• You want your employees and customers to have continuity

If your business is larger than $5M EBITDA, private equity is probably a better fit. If you want a 100% cash-at-close deal with no seller note, a strategic acquirer might be your best option.

The Bottom Line

Search funds are legitimate, well-funded buyers that have acquired thousands of businesses over the past decade. If a searcher reaches out, don't dismiss them — but do your homework. Evaluate the searcher, their investors, and their plan for your business the same way you'd evaluate any buyer.

If you're getting outreach from search fund buyers and want to understand whether they're a fit — or how to position your business for the best outcome — let's talk.