Question 1

What is a search fund?

Accepted Answer

A search fund is a type of investment vehicle where investors back an entrepreneur (called a "searcher") to find, acquire, and operate a small-to-medium business. The searcher raises capital in two phases: first to fund the search itself (typically 18–24 months), then to acquire a company. Investors get equity in the acquired business. Stanford's longitudinal study shows 69% of search fund acquisitions are profitable, with average annual returns of 30–35% IRR.

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Question 2

What is ETA (Entrepreneurship Through Acquisition)?

Accepted Answer

Entrepreneurship Through Acquisition (ETA) is the strategy of acquiring an existing, profitable business rather than starting one from scratch. Instead of building from zero, the entrepreneur buys a company with established revenue, customers, and operations—then works to grow it. Search funds are the most structured form of ETA, but it also includes independent sponsors, self-funded searchers, and acquisition entrepreneurs.

Question 3

How does co-investing work on SMB Investor Network?

Accepted Answer

Co-investing means you invest alongside Search Fund Ventures (SFV), our institutional partner, on the same terms and at the same valuation. SFV underwrites every deal, performs due diligence, and negotiates terms. You get access to the same deal memos, financials, and risk factors. The difference is a lower minimum—$10K instead of the $250K+ typically required in private equity.

Question 4

What are the minimum investment requirements?

Accepted Answer

The minimum for co-investments on SMB Investor Network is $10,000 per deal. This is significantly lower than traditional search fund or private equity minimums, which typically start at $100K–$250K. For our fund vehicle, the minimum is $250K. All investors must be accredited as defined by SEC regulations.

Question 5

What returns can investors expect?

Accepted Answer

We target 25%+ IRR on our deals. According to decades of Stanford research, search fund acquisitions historically return 3–5x invested capital with approximately 30% annual IRR, and 69% of deals are profitable. However, targets are not guarantees—individual deals can lose money, and past performance does not predict future results. Private equity in small businesses is illiquid, concentrated, and not suitable for everyone.

Question 6

How long is the typical investment horizon?

Accepted Answer

The typical hold period is 4–10 years. The search phase lasts 18–24 months, and if a business is acquired, the operating phase runs 3–7 years before exit. These are illiquid investments—you cannot sell them like public stocks. Plan on your capital being locked up for the full duration.

Question 7

What is a search fund sponsor?

Accepted Answer

A search fund sponsor (also called a searcher or operator) is the entrepreneur who raises capital to search for and acquire a business. Sponsors typically have MBA or relevant operating backgrounds, and they dedicate themselves full-time to finding and running the right company. SFV evaluates sponsors rigorously—looking at relevant experience, deal quality, and operating capability before backing any acquisition.

Question 8

How does Search Fund Ventures select deals?

Accepted Answer

SFV passes on 98% of deals it reviews. The criteria are strict: profitable, established businesses (not turnarounds) at 3–5x earnings multiples, in B2B and recession-resistant sectors, with clear succession or growth opportunities. Every deal goes through full financial due diligence, quality of earnings analysis, and operator evaluation. SFV invests its own capital alongside investors—alignment of interest is non-negotiable.

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