Search Fund
Encyclopedia
Search Funds are vehicles for entrepreneurs to raise funds from investors interested in making private equity
investments.
Search Funds typically target companies in the $5 million to $30 million price range, requiring $2 million to $10 million of equity capital
, in fragmented industries, with sustainable market positions, histories of stable cash flows, and long term opportunities for improvement and growth. Service and light manufacturing companies outside high tech industries are popular targets. Often these companies are under-managed prior to the acquisition
.
Most Search Funds are started by entrepreneurs with limited operational experience and possibly no direct experience in the target industry. The goal of the investor is to place promising, motivated managers in an environment with a high probability for success given the oversight and experience of the investors themselves.
The origins of the Search Fund are often traced back to H. Irving Grousbeck
, a professor at Stanford University's Graduate School of Business
, who originated the concept in 1984. Since then, it is estimated that over 129 funds have been formed, with 41 operating currently. The bulk of successful Search Funds have been raised by alumni of elite MBA programs with access to strong private equity
networks.
Private equity
Private equity, in finance, is an asset class consisting of equity securities in operating companies that are not publicly traded on a stock exchange....
investments.
- In the first stage, a small group of investors back operating manager(s) to search for a target company to acquire. A fund may or may not find a target acquisitionTakeoverIn business, a takeover is the purchase of one company by another . In the UK, the term refers to the acquisition of a public company whose shares are listed on a stock exchange, in contrast to the acquisition of a private company.- Friendly takeovers :Before a bidder makes an offer for another...
company. Investors are able to invest a pro-rataPro-rataPro rata is an adverb or adjective, meaning in proportion. The term is used in many legal and economic contexts. It is sometimes spelled pro-rata, but this is technically a misspelling of the Latin phrase...
share in the target company, subject to their individual liking. - In the second stage, the General Manager(s) of the Search Fund take operating roles in the acquired company—CEO, President and the like.
Search Funds typically target companies in the $5 million to $30 million price range, requiring $2 million to $10 million of equity capital
Stock
The capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors...
, in fragmented industries, with sustainable market positions, histories of stable cash flows, and long term opportunities for improvement and growth. Service and light manufacturing companies outside high tech industries are popular targets. Often these companies are under-managed prior to the acquisition
Takeover
In business, a takeover is the purchase of one company by another . In the UK, the term refers to the acquisition of a public company whose shares are listed on a stock exchange, in contrast to the acquisition of a private company.- Friendly takeovers :Before a bidder makes an offer for another...
.
Most Search Funds are started by entrepreneurs with limited operational experience and possibly no direct experience in the target industry. The goal of the investor is to place promising, motivated managers in an environment with a high probability for success given the oversight and experience of the investors themselves.
The origins of the Search Fund are often traced back to H. Irving Grousbeck
H. Irving Grousbeck
Harold Irving "Irv" Grousbeck is an entrepreneur, professor at Stanford Business School and co-owner of the National Basketball Association basketball team the Boston Celtics....
, a professor at Stanford University's Graduate School of Business
Stanford Graduate School of Business
The Stanford Graduate School of Business is one of the professional schools of Stanford University, in Stanford, California and is broadly regarded as one of the best business schools in the world.The Stanford GSB offers a general management Master of Business Administration degree, the Sloan...
, who originated the concept in 1984. Since then, it is estimated that over 129 funds have been formed, with 41 operating currently. The bulk of successful Search Funds have been raised by alumni of elite MBA programs with access to strong private equity
Private equity
Private equity, in finance, is an asset class consisting of equity securities in operating companies that are not publicly traded on a stock exchange....
networks.