Three Phases of Investing in Search Funds

The search process divided into three simple stages

Three Phases of Investing in Search Funds
Article by
GTE Staff Writer
Article Date
August 22, 2022

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.