Sandy Paige raised $420,000 at age 48—after most investors said no. He bought Explora BioLabs for ~$2.5M EBITDA and sold it for $295 million four years later.
Why it worked: Right business model (recurring revenue), right timing (biotech boom), right operational focus (7x EBITDA growth). Sandy's 27-28x return isn't typical, but Stanford data shows even median search funds deliver 4.5x returns.
Here's exactly how to launch your own search fund.
Search Fund vs Self-Funded: The Math
Before diving into the how-to, understand your two paths:
Traditional vs Self-Funded Comparison
TRADITIONAL SEARCH | SELF-FUNDED SEARCH | |
|---|---|---|
CAPITAL NEEDS | ||
Personal Capital | $0 | Living expenses only |
Search Salary | $100-150K/year | None |
Deal Size | $5-30M | $1-5M |
Your Ownership | 20-30% | 70-100% |
RISK/RETURN | ||
Downside Risk | $0 | Personal guarantee |
Typical Exit Value | $5-10M to you | $3-5M to you |
Annual Cash Flow | Salary only | $250K+ after debt |
Control | Board governance | Full control |
Example Math:
Traditional: $15M acquisition → 25% ownership → 20% annual growth → $31M value → $7.8M your equity
Self-Funded: $3M acquisition → 70% ownership → 20% annual growth → $7M value → $4.9M your equity
Key insight: Traditional delivers higher absolute dollars. Self-funded gives control and immediate cash flow without needing an exit.
⚡ Quick Take: Choose traditional if you want mentorship and larger deals. Choose self-funded if you want control and can handle personal risk.
Step 1: Qualify Yourself (1 Week)
Search funds work for specific people. Be honest about fit:
Green Lights:
2-7 years work experience
Can relocate anywhere
Comfortable with investor governance
Want to operate, not just invest
Red Flags:
Need immediate stability
Purely financial motivation
Can't handle 2 years of rejection
Tied to specific geography
Stanford data: Successful searchers come from consulting (16%), banking (23%), military (10%), operations (14%). Ages 25-50+, most 28-35.
⚡ Key Metric: 57% of searchers successfully acquire a business
Step 2: Define Your Thesis (2 Weeks)
Write 2-3 pages covering:
Industry Focus:
B2B services or software
Fragmented markets
Recurring revenue models
Avoid: rapid tech change, B2C, commodity
Target Metrics:
EBITDA: $1-5M (traditional) or $500K-2M (self-funded)
Margins: 15%+
Customer concentration: <30%
Growth: Stable or growing
Your Edge: What unique value do you bring? Industry knowledge? Operational expertise? Geographic advantage?
⚡ Pro Tip: Narrow focus increases success. Searchers targeting 3-4 industries close deals faster than generalists.
Step 3: Prepare Legal Structure (1 Month)
Budget $10-15K for setup:
Structure Options:
C-corp: Increasingly popular for QSBS tax benefits (0% capital gains if held 5+ years)
LLC: Traditional choice, simpler but no QSBS qualification
Required Documents:
Private Placement Memorandum (10-15 slides):
Executive Summary - One page: who you are, what you're raising, why you'll succeed
Your Background - Not just resume; highlight operational wins and relevant skills
Investment Thesis - Specific industries/geographies and why you have an edge there
Target Criteria - EBITDA range, growth profile, deal breakers (be specific)
Search Methodology - Direct outreach vs brokers, geographic strategy, timeline
Budget Breakdown - $400-600K: your salary, search costs, deal expenses, reserves
Proposed Economics - 1.5x step-up typical, your 25-30% vested equity
Illustrative Deal Model - Show a $10M acquisition returning 3-5x to investors
Risk Factors - Address obvious concerns (first-time CEO, industry shifts)
Ask and Terms - Units at $25-50K each, 2-year commitment, pro-rata rights
Appendix: Target Industry Scorecards
Example: B2B Trade Services (HVAC, Plumbing, Electrical):
Recurring revenue: 40-60% from service contracts
Gross margins: 35-50%
Customer concentration: <15% from largest
Growth: 5-10% organic annually
Why it works: Essential services, fragmented market, aging owners
Operating Agreement - Governance, transfer restrictions, step-up provisions Subscription Documents - Investor accreditation, wire instructions, signatures
Hire a search fund attorney. Don't try to save money here.
⚡ Critical: Good legal setup prevents problems that kill deals later
Step 4: Raise Search Capital (2-4 Months)
Target Investors
Build list of 50-100 prospects:
Institutional (Lead rounds, invest $100-200K):
+ many more
Individuals ($25-100K):
Former searchers (best advisors)
Industry executives
Your professional network
Fundraising Process
Week 1-2: Former searchers (close fastest) Week 3-6: Institutional investors Week 7-12: Individual investors
Questions You'll Get:
Why search vs traditional career?
What's your edge?
How will you source deals?
How coachable are you?
Typical Terms:
Raise: $400-600K total
Investors: 10-15
Step-up: 1.5x into acquisition
Timeline: 2-year commitment
⚡ Success Metrics: Pitch 50 → Serious discussions with 20 → Close 10-15 investors
Step 5: Search for Deals (12-24 Months)
Search Infrastructure
Tools Needed:
CRM for tracking
Financial model template
NDA template
Sourcing Strategy
Direct Outreach (Best ROI):
Send 50-100 letters monthly
Target owners 55+ years old
10-15% response rate expected
Brokered Deals:
Faster but competitive
Build relationships with 5-10 brokers
Deal platforms (Baton Market, Axial, etc.)
The Search Funnel
🔍 INITIAL REVIEW
500-1,000 companies
↓
📝 INITIAL CONTACT
50-100 (10% response)
↓
📋 NDA SIGNED
10-20 companies
↓
🏢 SITE VISITS
5-10 companies
↓
📄 LOI SUBMITTED
2-4 offers
↓
✅ DEAL CLOSED
1 acquisitionTimeline: First LOI typically comes month 7-8. Median time to acquisition: 19 months.
⚡ Reality Check: You'll kiss a lot of frogs. Average searcher reviews 30 companies for every LOI submitted.
Step 6: Buy the Business (3-4 Months)
Due Diligence Focus
Budget $50-150K for professional diligence:
Quality of Earnings ($25-50K): CPA firm adjusts EBITDA for one-time items, personal expenses, and normalizes owner comp. This becomes your baseline for valuation and debt capacity.
Legal Review ($15-30K): Focus on customer contracts, lease assignments, employment issues, and litigation history. One bad contract can kill a deal.
Customer Calls (Your time): Speak to top 10 customers. Ask about switching costs, satisfaction, and future plans. Customer concentration over 30% is a red flag.
Environmental ($10-20K if applicable): Required for manufacturing or real estate. Phase 1 at minimum, Phase 2 if issues found.
Deal Structure
Typical Capital Stack:
Bank Debt (30-50%): SBA loans at prime + 2.75%, conventional at SOFR + 4-6%
Seller Note (0-20%): Subordinated, 5-8% interest, shows seller confidence
Equity (30-50%): From your investors at 8% preferred return typically
Your Economics:
Total Ownership: 20-30% of equity, typically structured as:
Vesting Schedule (example for 25% total ownership):
8.33% vests at closing - Immediate ownership for taking CEO role
8.33% time-vested - Linear vesting over 4 years (or accelerated on exit)
8.33% performance-vested - Tied to IRR hurdles:
0% vests below 20% IRR
Linear vesting from 20-35% IRR
Full vesting at 35%+ IRR
May convert to MOIC (2.5-3.5x) after year 5
What This Means: On a $15M acquisition that exits for $45M in 5 years:
Investors get their 8% pref first, then 75% of remaining
Your 25% stake = ~$7-10M depending on performance
Forfeit unvested portions if you leave early
Base Compensation:
Year 1: $190K base + $25-50K target bonus
Years 2-5: Increases with EBITDA growth, typically reaching $250-300K
Post-exit: Often includes 1-2 year earnout at similar comp
Closing Sprint
60 Days Before: Lock rate with lender, finalize investor commitments
30 Days Before: Complete QoE adjustments, negotiate final purchase agreement
14 Days Before: Final lender underwriting, employment agreements for key staff
3 Days Before: Pre-close funds in escrow, final document review
Closing Day: Wire funds, sign documents, keys transfer
⚡ Critical: Keep seller engaged. Most deals die from seller fatigue, not economics.
Step 7: Operate and Exit (5-7 Years)
Year 1: Learn the Business
First 100 Days: Meet every customer, understand each employee's role, document undocumented processes. Don't change anything major—your job is pattern recognition. The previous owner ran this for 20+ years; you can wait 3 months before making changes.
Month 4-12: Identify quick wins that don't disrupt culture. Examples: Update the website, improve response times, implement basic CRM. Build trust by solving employee pain points first.
Years 2-3: Professionalize Operations
Systems: Implement real financial reporting (most small businesses run on QuickBooks and prayer). Add KPI dashboards so you're managing metrics, not gut feel.
Team Upgrades: Hire a strong #2 (usually COO or CFO). Replace underperformers with A-players. Budget 20% annual payroll increase to get quality talent.
Process Improvements: Document everything, eliminate bottlenecks, automate repetitive tasks. Most $2M EBITDA businesses run like $500K businesses—huge opportunity here.
Years 4-5: Accelerate Growth
Organic Growth: Expand into adjacent markets, add complementary services, improve pricing. Target 10-20% annual organic growth through execution, not heroics.
Add-On Acquisitions: Buy smaller competitors at 3-4x EBITDA, integrate at minimal cost, instantly boost value. One successful add-on can double your exit value.
Multiple Expansion: Institutional buyers pay more for professionalized businesses. Clean financials, diverse customers, strong management team can add 1-2x turns to your multiple.
Years 6-7: Exit Preparation
EBITDA Optimization: Cut non-essential costs, maximize pricing power, show growth trajectory. Buyers pay for future cash flows, not past performance.
Strategic Positioning: Create competitive tension—get multiple buyers interested. Strategic buyers (competitors/suppliers) typically pay 1-2x more than financial buyers.
Clean House: Resolve any litigation, clean up employment issues, document all IP. Due diligence discovers everything—better to address issues proactively.
Exit Routes & Multiples:
Strategic Sale (Most Common): 5-8x EBITDA to competitors or suppliers who see synergies
Financial Buyer: 4-6x EBITDA to PE firms looking for platform investments
Management Buyout: 3-5x EBITDA to your team (often seller-financed)
Recapitalization: Take chips off table but retain 20-40% for second bite
⚡ Median Outcome: $2.25M to searcher at exit (Stanford data)
Common Pitfalls
Deal fever - After 18 months, bad deals look good
Working capital surprise - Budget extra 20%
Moving too fast - First 100 days: listen, don't change
Wrong investors - Diligence them like they diligence you
Overpromising - Under-promise to investors, over-deliver
The Bottom Line
Search Fund Returns (Stanford Study 2024):
Median: 4.5x ROI, 35% IRR
Top quartile: 10x+ returns
Bottom quartile: Total loss
Who Should Do This:
Want to be CEO by 30-35
Comfortable with uncertainty
Genuinely enjoy operating
Can handle constant rejection
Who Shouldn't:
Need predictable path
Want passive investment
Can't relocate
Purely money motivated
Search funds aren't easy money. You'll spend two years getting rejected, then five years grinding operations. But it remains the most reliable path from zero to CEO with meaningful ownership.
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Disclaimer: This guide is for educational purposes only and does not constitute legal, financial, tax, or investment advice. Business acquisitions involve significant risks, and outcomes can vary widely based on individual circumstances. Always consult with qualified professionals including attorneys, CPAs, and financial advisors before making acquisition decisions. The EBIT Community does not guarantee the accuracy of information provided or the success of any acquisition strategy. Past performance and examples do not guarantee future results.
