Search Fund Concept
Search Fund Concept
A search fund is an innovative investment model that enables ambitious young entrepreneurs to become owners and managing directors of an established small or medium-sized enterprise (SME), as an alternative to founding a startup or pursuing a traditional career at a large corporation or in consulting.
The concept was developed in 1984 by H. Irving Grousbeck during his time at Harvard and later at Stanford University, and has since established itself as a recognized path to entrepreneurship.
While this model has long been widespread and well-known in the U.S., it is now gaining increasing popularity in Europe as well. It offers an attractive alternative for entrepreneurial talents who wish to take over a company and further develop it.
In a search fund, one or two young entrepreneurs, known as “Searchers”, first raise equity capital from a group of experienced investors (often 10-15 parties). This capital finances a focused, approximately two-year search for the right company.
During the search phase, the Searchers look for an attractive, healthy, and profitable company, ideally one with stable recurring revenue, loyal customers, and clear growth potential. Typically, these are small companies with an EBITDA of 1-4 million EUR per year operating in fragmented markets. The most common reason for sale is an unresolved succession issue.
Once a suitable company has been found and a professional due diligence process has been completed, investors are invited to participate in the acquisition. Each investor has the right, but not the obligation, to invest in proportion to their pro-rata share from the search phase.
After the acquisition, the Searchers take over management, referred to as “CEOs” from this point on, and purposefully develop the company with an entrepreneurial drive. The goal is substantial, profitable growth and sustainable value creation.
Throughout the entire process, the investors serve as mentors, providing experience, their network, and strategic guidance. Upon achieving defined performance metrics, the Searchers become the company’s largest shareholders and continue to lead it in the long term as true owners.
A search fund typically goes through these five clearly defined phases:
Equity capital for the search is raised from a group of experienced investors.
A focused, approximately two-year search for a healthy, profitable company.
Following due diligence, the investors participate in the acquisition on a pro rata basis.
The Searchers take over as CEOs and drive profitable growth.
Sustainable value creation leads to a successful exit.
The search fund model creates a true win-win situation for all parties involved.
Ambitious young entrepreneurs are given the opportunity to take over and lead an established company without having to raise significant capital themselves. They receive not only capital but also access to the entrepreneurial experience and networks of their investors and advisory boards.
Investors, in turn, gain access to an attractive niche asset class and participate directly in the CEOs’ success, as co-owners of the acquired company. Studies by Stanford University and the IESE Business School show average IRRs of around 30% per annum. But beyond the returns, many investors, who are often experienced entrepreneurs themselves, value the opportunity to actively mentor the next generation and pass on what they themselves have learned and built.
The search fund model also helps solve the succession problem in the SME sector. Where no internal successor exists, a new generation of entrepreneurial owners takes over, ensuring the continued existence and further development of the companies.
At Valmaris, we invest as a long-term, entrepreneurial partner. Our own values – long-term thinking, sustainability, trust and transparency – are closely aligned with the Search Fund model and its unique ecosystem.
What excites us most is the close collaboration with ambitious Searchers and CEOs and the opportunity to contribute our own experience in a hands-on way. For us, Search Funds are about much more than providing capital: we invest time, operational expertise and our network, and we stay closely involved, including when situations become challenging.
It is precisely this personal involvement, the partnership-driven approach and the opportunity to build successful companies together that make the model so compelling to us. It reflects our philosophy of “Entrepreneurs backing Entrepreneurs” and our ambition to create sustainable, long-term value.