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Search Funds

On a trip out to Charlotte visiting PE firms, I talked to a fellow student that was interested in starting his own search fund.  I had no idea what one was, so he gave me the 30-second description and then pointed me towards a couple websites to learn more about it.  The basic idea of a search fund is for an entrepreneur to raise funds to allow them to search for a target business to acquire, operate, and then exit.  In the initial stage, you identify investors that are interested in making private equity investments.  You pool together small investments from those investors ranging between $15 to $20k for a total of $150 to $400k.  This initial fund pays the entrepreneur's salary and expenses while they search for a target company to acquire.  In the next stage, the investors buy the company and hand over the company to the entrepreneur to lead as CEO or President.  The entrepreneur's goal is to grow the company for 4 to 6 years to the point where the company is ready for an exit.  The concept seems to have emerged in the mid-80's from a professor at the Stanford GSB (see Stanford's Search Fund Resource page).

For an entrepreneur that doesn't have their own start-up idea, a search fund sounds like a really interesting alternative.  I'll have to look into it more.
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gnp said…
A person I know is thinking about doing a search fund and buying a business. If you want to talk with him at some point, let me know.
January 1, 2009 at 10:37 AM
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