A Primer on Search Funds

The Institute's reading

The Primer explains the search fund end to end: raising a small pool to fund a full-time search, the economics between searcher and investors, target criteria the community has converged on, sturdy recurring-revenue companies of modest size, and the operating transition after close. Because Stanford also runs the long-running Search Fund Study, the Primer sits on decades of outcome data rather than anecdote, and it is revised as the ecosystem changes.

The Institute’s reading: owners should read it even if they will never raise a search fund, for two reasons. Its target criteria are a distillation of what sophisticated small-company buyers have collectively learned to want, useful to any buyer and doubly useful to any seller wondering how their company will be screened. And searchers are now a real buyer category in the lower middle market: a seller weighing an approach from one will find the incentives and economics of the person across the table documented here with unusual candor.

Key propositions

• The searcher model works because it pairs aligned incentives with patient, experienced investor governance.
• The community’s target criteria, recurring revenue, fragmented competition, modest capex, exiting owner, encode decades of small-deal lessons.
• Outcome dispersion is wide and the median is earned by discipline in the search, not brilliance after it.

In practice

• Buyers of any size can graft the Primer’s screening criteria into their own thesis.
• Sellers approached by a searcher should read this before the second phone call.

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