A Look at Search Funds

Search funds have become a popular investment vehicle in recent years.  We thought it might be helpful to provide business owners some information about what search funds are all about.  Much of this information is adapted from searchfunder.com, an online community serving the search fund world.

A “Search fund” is an entity set up for the acquisition of a single business. Search fund principals move from dealmaking to operating roles once an company is bought, usually becoming CEOs. The search for a successful acquisition usually lasts 2 to 3 years.

Many credit the search fund model to H. Irving Grousbeck who funded the first searcher in 1984. Today, searchfunds as an asset class are growing rapidly due to a very active investor community evangelizing the model at top MBA programs around the world. Most top business schools now have classes dedicated to “entrepreneurship through acquisition”.

Traditional

Searchers will raise capital from a group of investors to look for a company within a geography. These investors have the right of first refusal on any deals.  Searchfunder.com estimates there have been 627 traditi9nal search funds, of which 198 are currently active.

Self-Funded

Searchers finance their own search efforts and only look for outside capital when a deal is found. The terms are negotiated on a deal-by-deal basis.

Searchfunder.com estimates there have been 155 self-funded search funds, of which 94 are currently active.

Single Sponsor

Searchers raise search capital from a single source rather than from a group of investors, sometimes even co-locating with their investor.  Searchfunder estimates that there have been 41 single-sponsor search funds, of which 22 are currently active.

It is hard to be on top of the entire search fund universe, but we believe that there are have been four search fund investments in the landscape industry to date, Botanical Designs in Seattle in 2018, The Wright Gardner in northern California in 2017, CityLeaf in San Francisco in 2016 and Nature Care Services in Los Angeles in 2014.

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