The Search Fund Industry: Two Decades of Solid Performance from an Investment Perspective


Over the past 20 years, the search fund industry has proven to be a breeding ground for successful entrepreneurial ventures and lucrative investment opportunities. This once-obscure investment model has attracted significant attention, providing high net worth individuals, family offices, and institutional investors with alternative avenues for capital deployment.

While there are multiple paths to business ownership and investment, the search fund model stands out for its unique combination of venture capital and private equity characteristics. With a focus on acquiring and scaling small-to-midsize businesses (SMBs), search funds have delivered a robust track record of returns, proving their worth as a compelling asset class. This article aims to examine how the search fund industry has performed from an investment perspective over the last two decades.

Understanding the Search Fund Model

Before diving into the performance statistics, it’s essential to understand what search funds are. In essence, a search fund is an investment vehicle through which entrepreneurs seek to acquire existing businesses. Typically, a single entrepreneur or a small team raises a small amount of capital to finance the “search” phase, where they identify a target company for acquisition. Once a suitable target is found, the search fund operators then raise additional capital for the acquisition and take over the operational reins of the business.

This model enables investors to bet not just on a particular business but also on the managerial talent spearheading the enterprise. It combines the risk profile and return potential of venture capital investments with the cash flow and asset-backed safety of private equity, offering a unique blend of both worlds.

Historical Performance

IRR and Multiple on Invested Capital

According to various academic studies and industry reports, search funds have demonstrated impressive financial returns. A study conducted by the Stanford Graduate School of Business in 2018 revealed that search funds produced an aggregate pre-tax internal rate of return (IRR) of approximately 33.8% and a 2.4x multiple on invested capital (MOIC) from 1984 to 2017. While this data set extends beyond our 20-year window, there’s strong evidence to suggest that the bulk of this performance has been maintained or even improved over the past two decades.

The Success Rate of Search Funds

Not all search funds lead to successful acquisitions or profitable exits. The inherent risk in this investment model involves the search fund entrepreneur’s ability to identify, acquire, and successfully operate a business. However, even when considering failed searches and suboptimal outcomes, roughly 20-25% of search funds have historically generated returns of 35% IRR or greater, according to the Stanford study. These “home run” investments substantially lift the aggregate performance figures, compensating for underperforming assets in a portfolio of search fund investments.

Diversification Benefits

Due to their unique nature, search funds offer diversification benefits when included in a broader investment portfolio. Search funds invest in various industries and geographies and are not highly correlated with traditional equity or bond markets. During economic downturns, well-managed small-to-midsize businesses acquired by search funds have shown resilience, providing a cushion against broader market volatility.

Factors Contributing to Strong Performance

Better Screening and Due Diligence

The rise of specialized consulting services for search funds and increased attention from academia has contributed to better screening and due diligence practices over the years. Today’s search fund entrepreneurs have access to a wealth of knowledge and resources that were not readily available two decades ago.

Learning Curve and Knowledge Transfer

As more successful search fund acquisitions occur, the lessons learned are disseminated across the industry. First-time search fund entrepreneurs now have ample successful case studies to learn from, reducing the likelihood of common pitfalls and operational mistakes. This accumulated wisdom positively impacts the industry’s overall performance.

Evolution of Co-Investment Models

Traditionally, investors who financed the search phase would also provide the capital required for the acquisition. However, over the past decade, we’ve seen the rise of “co-investment” models, where outside investors contribute additional capital at the acquisition stage. This has enabled search funds to pursue larger and more lucrative targets, driving up overall returns.

The Road Ahead

The search fund model continues to evolve, adapting to economic conditions and investor preferences. With increased institutional interest, we may see even more innovation in the space. While past performance is not a guarantee of future results, the strong track record of search funds over the last 20 years offers a compelling argument for their inclusion in diversified investment portfolios.


From providing competitive IRRs to diversification benefits, the search fund industry has proven itself as a strong performer in the alternative investment landscape over the past 20 years. Backed by rigorous due diligence, increasingly sophisticated operational strategies, and the rise of co-investment models, search funds offer a unique and compelling investment proposition. For investors seeking to capitalize on the entrepreneurial spirit while mitigating some of the risks associated with venture capital and private equity, search funds present a viable and increasingly attractive option.

As the industry matures and continues to innovate, the next 20 years for search funds look promising, solidifying their place in the investment arena as a force to be reckoned with.

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