Which Search Fund Models Exist?

In the field of business succession, various Search Fund models have emerged that differ in their structure, financing, and operational focus. These models offer different pathways for aspiring entrepreneurs—so-called "Searchers"—to acquire and manage an existing company. This article highlights the key Search Fund models, their specific characteristics, advantages and disadvantages, as well as their suitability for different scenarios.

What is the core idea behind all Search Fund models?

The core idea of all Search Fund models is that an entrepreneurial individual (the Searcher), with the support of investors, takes over an existing, profitable medium-sized company, then manages and develops it as CEO. The Searcher receives a significant equity stake in the company, which is linked to certain performance targets.

Despite this common foundation, the various models differ significantly in their specific design and capital structure.

What are the main types of Search Funds?

1. Traditional Search Fund

The traditional Search Fund is the original model developed in the 1980s at Stanford University.

Characteristics:

• The Searcher initially raises capital from 10-20 investors (approximately €20,000–€50,000 per investor)
• This initial funding covers the Searcher’s salary and search expenses for 1.5 to 2.5 years
• Investors receive the right, but not the obligation, to finance the acquisition
• After a successful acquisition, the Searcher typically receives 20-30% of the company shares in the form of vesting shares

Advantages:

• Established structure with clear expectations and proven processes
• Strong investor base with relevant expertise
• Diversified investor risk
• The Searcher can fully focus on the search process

Disadvantages:

• Higher dilution of the Searcher’s ownership stake
• More complex decision-making due to multiple stakeholders
• Less flexibility in company selection
• Pressure to perform during the search phase

Traditional Search Funds are particularly suitable for Searchers with limited personal capital who want to benefit from the expertise and network of a larger investor group.

2. Self-Funded Search Fund

The self-funded Search Fund is also known as "Entrepreneurship through Acquisition" (ETA) or "Bootstrapped Search."

Characteristics:

• The Searcher finances the search phase with their own funds
• Investors are only involved during the acquisition phase
• Higher ownership stakes for the Searcher (typically 30-50%)
• Greater flexibility in company selection

Advantages:

• Higher equity stake in the acquired company
• More autonomy in decision-making
• No obligations to investors during the search phase
• More flexible timing and search criteria

Disadvantages:

• Higher personal financial risk
• Lack of continuous advisory support from investors
• Potentially longer search phase due to limited resources
• Possibly more challenging access to acquisition capital

This model suits Searchers with sufficient financial means for the search phase and a desire for greater independence.

3. Single-Sponsor Search Fund

In the Single-Sponsor model, a single investor or a small group of investors finances the entire process.

Characteristics:

• One primary investor or a small investor group supports the Searcher
• Simplified decision-making and communication
• Typically a close partnership between Searcher and investor
• Often customized agreements regarding ownership stakes

Advantages:

• Faster decision-making
• Clearer and more direct communication
• Often more specific and valuable support
• Potentially better alignment of interests

Disadvantages:

• Higher dependency on a single investor
• Less diversification of expertise and networks
• Possibly stronger investor influence on management
• Fewer balancing voices in case of conflicts

The Single-Sponsor model is suitable for Searchers seeking close collaboration with an experienced investor and a leaner decision-making structure.

4. Search Fund Accelerator/Incubator

More recently, accelerator and incubator models for Search Funds have developed.

Characteristics:

• An institutional sponsor supports multiple Searchers simultaneously
• Structured programs with training, mentoring, and resources
• Often standardized financing and ownership structures
• Community aspect and peer learning among Searchers

Advantages:

• Comprehensive support and education
• Community of like-minded Searchers for experience exchange
• Institutional knowledge and proven methodologies
• Often better access to deal flow

Disadvantages:

• Less individualization of the process
• Possibly stronger control by the accelerator
• Potentially higher costs or ownership stakes for the accelerator
• Competition among Searchers for the best acquisition targets

Accelerator models are especially suitable for less experienced Searchers who want to benefit from structured support.

5. Permanent Capital Vehicle (PCV)

A newer model in the Search Fund space is the Permanent Capital Vehicle.

Characteristics:

• Permanent capital structure without a defined exit date
• Focus on long-term value creation and sustainable growth
• Often multiple acquisitions over time (similar to a holding structure)
• More flexible holding periods for acquired companies

Advantages:

• Very long-term perspective without exit pressure
• Ability to acquire multiple companies and leverage synergies
• Attractive to certain investor groups (Family Offices, foundations)
• Enables more sustainable corporate management

Disadvantages:

• More complex structure and governance
• Higher requirements for reporting and transparency
• Possibly less attractive to investors with clear exit expectations
• Challenges in valuation and compensation structures over longer periods

PCVs are suitable for Searchers with a long-term vision who want to build a corporate group.

How do the capital structures differ among the various models?

Capital structure is a key differentiator between the different Search Fund models:

Model	Search Phase	Acquisition	Typical Ownership Stake of the Searcher
Traditional	Funded jointly by 10-20 investors	Same investors have right of first refusal	20-30%
Self-Funded	Searcher’s own funds	New investors for acquisition	30-50%
Single Sponsor	Funded by one main investor	Same main investor	25-40%
Accelerator	Accelerator + possibly other investors	Accelerator + other investors	20-30%
PCV	Permanent capital	Permanent capital	Variable, often performance-based

What factors should be considered when choosing the right Search Fund model?

Choosing the right model depends on various factors:

1. Financial Situation of the Searcher

• Available personal capital
• Willingness to take financial risk
• Salary sacrifice during the search phase

2. Background and Experience

• Previous entrepreneurial experience
• Industry knowledge
• Financing and M&A expertise

3. Need for Independence

• Desired level of autonomy
• Willingness to collaborate with investors
• Tolerance for external influence

4. Long-Term Goals

• Intended holding period
• Exit strategies
• Career ambitions

5. Network and Support Needs

• Existing network to potential sellers
• Need for mentoring and advice
• Desire for peer exchange

How do Search Fund models differ in the German-speaking region?

In Germany, Austria, and Switzerland, Search Funds have only established themselves in recent years, resulting in some regional particularities:

• Greater importance of bank financing: Compared to the US market, bank loans play a larger role
• More conservative capital structures: Typically lower leverage ratios
• Stronger involvement of Family Offices: Family Offices are important investors especially in the DACH region
• Focus on the Mittelstand: Particularly suitable for succession issues in medium-sized companies
• Cultural factors: Often longer transition periods with previous owners

What are the success rates of the different models?

Based on historical data (mainly from the US), the following trends emerge:

• Traditional Search Funds: Approximately 70-80% find a suitable acquisition target; historical IRR for investors is around 30-35%
• Self-Funded Search Funds: Lower acquisition success rate (50-60%) but higher ownership stakes
• Single-Sponsor Models: Higher success rate (80-90%) due to more targeted support
• Accelerator Models: Limited long-term data available, but initial results show success rates of 60-75%

It is important to note that these data primarily come from the US market and cannot be directly transferred to the DACH region.

Conclusion: Which Search Fund model suits whom?

The choice of the optimal Search Fund model should be based on a careful self-assessment and individual goals:

• Traditional Search Fund: Ideal for candidates with limited personal capital who want to benefit from a broad investor base and are willing to accept a smaller ownership stake.

• Self-Funded Search: Suitable for candidates with sufficient financial means for the search phase who seek greater independence and a higher ownership stake.

• Single-Sponsor Model: Appropriate for Searchers seeking close collaboration with an experienced investor and clear, fast decision-making paths.

• Accelerator Model: Best for less experienced Searchers who want structured support, training, and peer exchange.

• Permanent Capital Vehicle: Fits Searchers with a long-term vision who want to acquire multiple companies and build a group without exit pressure.

Ultimately, there is no "best" model—the choice depends on the Searcher’s individual circumstances, goals, and preferences. A thorough analysis of one’s situation and open discussions with successful Searchers and potential investors can help make the right decision.

The Search Fund concept in its various forms offers a promising opportunity for entrepreneurial individuals to acquire and manage a company, while also providing an attractive solution to the succession challenges in the Mittelstand.

Are you interested in the financial aspects of these acquisition models? Learn more about financing options with little equity or how to determine the value of a company.