Definition
A search fund is a route to buying and running a single business. In a traditional search fund, one or two entrepreneurs, known as searchers or search funders, raise money from investors to pay their salary and costs while they look for a business, and those investors usually get the first option to fund the purchase, with the searcher becoming chief executive. In a self-funded search, the searcher pays their own way during the search and raises equity only once they have a deal. A traditional searcher typically earns a share of the equity in stages, while a self-funded searcher usually keeps a larger stake because they carried the cost of the search.
Worked example
Sam, a fictional searcher, raises $500,000 from a group of investors to cover a salary and costs during the search.
After many months, Sam agrees to buy Cloverleaf Air Conditioning, a fictional US business, for $8,000,000. The same investors provide most of the equity, a bank provides senior debt and the seller keeps a small stake. Sam becomes chief executive and earns a share of the equity in stages, linked to staying in the role and to results.
Senior debt is borrowing that ranks first for repayment and is usually secured on the business's assets. It is typically the cheapest part of acquisition finance and carries the strictest conditions.
Why buyers care
If you are a searcher, your investors will expect a stable, cash-generating business that can run without its founder, with room to grow and regular reporting after completion. Owner dependence matters doubly, because you are replacing the owner rather than working beside them.
Sellers may be wary of handing their business to a first-time chief executive. A clear transition plan, credible backers and evidence that you have done your homework on the business all help your offer stand out.