Search Fund vs Self-Funded Search: Which Path to Business Ownership?

The entrepreneurship through acquisition (ETA) community has two dominant models for finding and buying a small business: the traditional search fund and the self-funded search. Both lead to the same destination—owning and operating a profitable SMB—but the journey looks very different.

This guide breaks down everything you need to know to choose the right path.

Quick Comparison

Factor	Traditional Search Fund	Self-Funded Search
Search Capital	$400K-$600K raised from investors	Self-funded or minimal outside capital
Searcher Salary	$80K-$120K/year during search	None (or from personal savings)
Time to Search	18-24 months typical	Open-ended, often longer
Equity at Acquisition	20-30% (step-up to 30-35% at exit)	50-100% ownership
Investor Involvement	Board, regular reporting, mentorship	Minimal to none
Deal Size	$1M-$3M EBITDA	Typically $500K-$2M EBITDA
Financing Flexibility	Structured waterfall, preferred returns	Full flexibility

What Is a Traditional Search Fund?

A traditional search fund is an investment vehicle where an aspiring entrepreneur (the searcher) raises capital from investors to fund a 2-year search for an acquisition target.

The model, pioneered at Stanford GSB in the 1980s, follows a well-defined structure:

Phase 1: Raise Search Capital (~$400K-$600K)

• Typically 10-20 investors, each contributing $30K-$50K
• Covers salary, deal sourcing, travel, and operating costs
• Investors get the right (not obligation) to invest in the acquisition

Phase 2: Search (18-24 months)

• Full-time dedicated search
• Salary typically $80K-$120K
• Access to investor networks and mentorship
• Clear timeline pressure

Phase 3: Acquisition

• Investors from search phase get pro-rata rights
• New investors can join
• Deal sizes typically $1M-$3M EBITDA
• Searcher receives 20-30% equity

Key characteristics:

• Formal structure with defined investor rights
• Board of directors with investor representation
• Salary during search reduces financial pressure
• Established playbook and community support

What Is a Self-Funded Search?

A self-funded search (sometimes called an "independent sponsor" search) is when an entrepreneur funds their own search process without raising dedicated search capital.

Typical approach:

• Searcher uses personal savings or part-time income
• No formal investor obligations during search
• Full flexibility on timeline and approach
• Raise capital only when a deal is found

Key characteristics:

• No salary during search (biggest trade-off)
• Complete equity ownership flexibility
• No investor reporting until acquisition
• Can search while employed (hybrid approach)

Key Differences

1. Economics and Ownership

Traditional Search Fund:

• Searcher receives 20-30% of common equity at acquisition
• "Step-up" provisions increase ownership at exit (typically 30-35% total)
• Investors receive preferred returns (often 8%) before common distributions
• Carried interest structures can limit upside

Self-Funded Search:

• Searcher can negotiate any ownership percentage
• Common to retain 50-100% equity
• No preferred return waterfall (unless you structure it)
• Full upside capture on successful exits

Example:

• $2M EBITDA business acquired at 4x ($8M enterprise value)
• Exit at $16M (5 years, 8x EBITDA)

Outcome	Traditional Searcher	Self-Funded Searcher
Exit Proceeds	~$2.5M (30% after pref)	~$8M (100% common)

2. Financial Pressure During Search

Traditional Search Fund:

• $80K-$120K annual salary
• Health insurance often included
• 18-24 month runway
• Clear "clock" creates urgency

Self-Funded Search:

• No salary (must self-fund living expenses)
• Need 12-24+ months of runway saved
• No healthcare coverage
• Flexible timeline can become a trap

Many searchers underestimate the financial and psychological pressure of a self-funded search. Having 18 months of living expenses saved is the minimum recommendation.

3. Investor Relationships

Traditional Search Fund:

• 10-20 investors deeply involved
• Monthly/quarterly investor updates
• Board meetings (typically monthly)
• Access to investor networks for deals and advice
• Investor expectations and oversight

Self-Funded Search:

• No investor obligations during search
• Raise capital deal-by-deal
• Investors evaluate each opportunity independently
• Less mentorship/network access
• More autonomy, less support

4. Deal Sourcing and Credibility

Traditional Search Fund:

• "Funded buyer" credibility with brokers
• Investor network provides deal flow
• Professional structure reassures sellers
• Competition for deals from other funded searchers

Self-Funded Search:

• Harder to establish credibility initially
• Must prove financing ability on each deal
• More creative deal structures possible
• Less competition from other self-funded searchers

5. Deal Size and Flexibility

Traditional Search Fund:

• Typically targets $1M-$3M EBITDA
• Need institutional-grade businesses
• Structured acquisition financing
• Less flexibility on deal terms

Self-Funded Search:

• Can pursue smaller deals ($500K-$1.5M EBITDA)
• Creative structures (earn-outs, seller financing)
• SBA loans more common
• Roll-up strategies possible

Pros and Cons

Traditional Search Fund Pros

• Salary during search reduces financial pressure
• Established playbook and community
• Investor networks provide deal flow and advice
• Credibility with sellers and brokers
• Built-in mentorship and governance

Traditional Search Fund Cons

• Give up significant equity (70-80%)
• Investor oversight and board obligations
• Time pressure from defined search period
• Less flexibility on deal structure
• Must fit the "search fund" deal profile

Self-Funded Search Pros

• Retain majority or all equity
• Complete autonomy and flexibility
• No investor reporting during search
• Can pursue smaller or creative deals
• No time pressure from investors

Self-Funded Search Cons

• No salary during search (significant financial burden)
• Less access to networks and mentorship
• Harder to establish credibility
• Isolation can be challenging
• Raising acquisition capital deal-by-deal

When to Choose a Traditional Search Fund

Choose a traditional search fund if you:

• Don't have 18+ months of living expenses saved
• Want mentorship and a proven playbook
• Value the network and community
• Are targeting larger deals ($1M+ EBITDA)
• Can accept 25-30% ownership for reduced risk
• Have an MBA or similar background that resonates with search fund investors

When to Choose a Self-Funded Search

Choose a self-funded search if you:

• Have significant savings or alternative income
• Want to retain maximum equity
• Are comfortable with uncertainty and isolation
• Target smaller deals or creative structures
• Have existing deal flow or industry expertise
• Prioritize autonomy over support

The Hybrid Approach

Many searchers combine elements of both models:

1. Funded then Self-Funded: Raise search capital, but take personal risk on the acquisition for more equity
2. Part-Time Self-Funded: Search while employed, then go full-time when a deal is close
3. Independent Sponsor: No search capital, but line up committed investors before searching
4. Search + Operate: Buy a smaller business quickly, use cash flow to fund search for add-ons

Stanford Data: What the Numbers Say

According to Stanford's 2024 Search Fund Study:

Metric	Traditional Search Funds
Searchers who acquire a business	~70%
Profitable acquisitions	69%
Average IRR (all deals)	33%
Average exit multiple	5.2x

Self-funded searches are harder to track systematically, but anecdotal evidence suggests:

• Longer average search times
• Smaller average deal sizes
• Higher equity retention when successful
• More variable outcomes

Bottom Line

Choose a traditional search fund if you want a structured path with salary, mentorship, and proven playbook—and you're willing to trade equity for reduced risk.

Choose self-funded if you have the financial runway, want maximum ownership, and thrive with autonomy. Be honest about your risk tolerance and savings.

Both paths have produced successful entrepreneur-operators. The right choice depends on your financial situation, risk tolerance, and how much you value support vs. ownership.

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