Search Funds: The Bold New Frontier for Angel Investors
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Imagine this. You’re no longer betting on the next fragile unicorn but backing a bold captain ready to set sail and revive a sturdy yet underperforming SME. Welcome to the world of search funds: where investment transforms into an entrepreneurial odyssey.
A Model with a Mission
The concept is simple yet brilliant. Search funds empower ambitious entrepreneurs to find, acquire, and lead profitable businesses often overlooked by traditional investors.
Here’s how it works:
The Initial Raise:
It all starts with a call to action. The entrepreneur gathers a small group of investors (BAs) to fund the search phase. This amount — ranging from €300,000 to €500,000 — covers expenses like travel, financial analysis, and networking with potential targets.The Treasure Hunt:
Over 12 to 24 months, the entrepreneur combs the market in search of the perfect gem:An SME with EBITDA above €1M.
Steady growth in an industry resilient to economic swings.
A simple structure, ready for modernization or optimization.
Typical targets include businesses generating between €5M and €30M in annual revenue with EBITDA margins of 15–30%. In Europe, acquisition multiples hover between 4x and 6x EBITDA, far below the 10x to 12x multiples often seen in high-growth tech sectors.The Acquisition:
Once the target is found, a second capital raise is organized. The BAs invest in the purchase, often structured with a mix of equity and debt — and here’s an idea: why not establish a fund to follow all transactions at this stage? The entrepreneur steps in as the new captain, steering the ship toward growth.
On average, a successful acquisition costs between €10M and €20M, with the entrepreneur stepping in as the new captain to steer the ship toward growth.The Transformation:
This is where the magic happens. Backed by their investors, the entrepreneur executes a growth strategy that might include:Digitizing the business.
Expanding market share.
Modernizing HR practices.
The Exit (or Not):
After 5 to 7 years, the business might be sold at a significantly higher valuation, delivering impressive returns to the LPs. But the best entrepreneurs? They often choose to keep going, implementing an LBO to buy out the initial investors and stay at the helm.
An Adventure Where You Play a Key Role
In a search fund, you’re not just a passive investor. You’re the mentor, the ally, the strategic teammate. Your role begins during the search phase:
Helping identify the right targets.
Sharing insights on management or acquisitions.
Providing post-acquisition guidance.
Unlike a VC fund where you invest in dozens of startups without direct involvement, here you’re working side by side with an entrepreneur to make the journey a success.
An SME, Not a Rocket Ship
The beauty of search funds lies in their simplicity and reliability. It’s not about betting on revolutionary technologies or risky business models. The SMEs targeted are established businesses — sometimes mismanaged but brimming with untapped potential. This is an investment in the real, not in speculative ideas.
Preferred sectors? Often those flying under the VC radar:
B2B services (logistics, industrial maintenance).
Private education (schools, e-learning).
Local niches, where competition remains low.
A Win-Win Model
The numbers don’t lie: search funds are not just an exciting adventure; they’re also performance engines. According to Stanford:
IRR averages hit 35%, significantly outperforming VC funds, which hover below 20%.
ROI averages 4.5x, compared to the lower success rates in startup investments (only 25–30% of VC-backed startups reach an exit).
But success requires careful balance. Every step must be managed with precision:
The search phase can be long and demanding. Only about 10% of targets translate into acquisitions.
Post-acquisition support is critical to turn the SME into a true success story.
For BAs, this is a rare opportunity to combine direct impact with financial performance.
And in Europe? An Adventure Yet to Be Written
In France and across Europe, the model is gaining traction. With countless family-owned SMEs poorly prepared for succession, search funds are finding fertile ground. European entrepreneurs — often graduates of top schools — are turning to this model to blend personal ambition with value creation.
For BAs, this is a unique chance to pioneer and contribute to a developing ecosystem while diversifying their portfolios.
Ready to Embark?
Search funds are not just a passing trend. They represent a new way of investing: more human, more tangible, and often more profitable. For BAs, it’s the chance to support driven entrepreneurs tackling real-world challenges while achieving impressive returns.
So, are you ready to trade your unicorn bets for a meaningful entrepreneurial adventure? The treasure awaits.
If you’re eager to dive deeper, consider exploring the leading players in this space. Funds like Relay Investments, NexGen Growth Partners, and Alpine Investors are at the forefront of the search fund ecosystem, consistently supporting entrepreneurs and driving exceptional returns. These funds don’t just invest — they mentor, strategize, and elevate the search fund model to new heights. Start there, and let the journey begin.
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