Three Phases of Investing in Search Funds

With search funds, investors can be flexible with how they invest, as there are three separate phases of fundraising for the search process: the search capital, the acquisition financing, and further investing during the operation phase of the firm.

Search Capital Phase: Initial funds raised by the searcher to conduct a campaign to find businesses they can potentially acquire. Searchers will typically try to raise between $350,000-500,000, selling units of the company to about 15-20 investors to pay for any expenses that arise during the process.

Acquisition Financing Phase: When the searcher has come across a deal they believe would be a good business to operate to return profit and are able to finalize a deal with the seller, searchers will typically ask to raise about 20-30% of the buying price with preferred equity from investors. The common equity raised usually comes from the original 15-20 investors that buy units during the search capital phase.

Operating Investments Phase: Additional capital could be raised to expand, with examples of growing horizontally or vertically through acquisition, developing new product lines, or acquiring new warehouses or machinery.