This article from Entrepreneur explains what the search fund model is, and why selling to a recent MBA graduate, or young entrepreneur, can be beneficial to business owners. A search fund backs MBA graduates with the support, both in terms of finances and mentorship, to conduct a one-time search to find, acquire, and then run an established business. For business owners, this model can be the perfect solution because it allows them to find a new owner while keeping the business intact.
A search fund allows the current business owners to step out of the role of CEO, as the MBA graduate (searcher) will take over that position. While the searcher will take over, he/she will often want to keep the foundation and original vision that the company was built on. Considering searchers are looking for companies to buy that fit their own interests, have strong financials, solid operations, and hardworking employees, much of the integrity of the company will remain the same as the searcher takes over. For this reason, selling a business to a searcher can be good for business owners who do not want to see their company upended. Unlike selling to a competitor, vendor, or other strategic buyer, a search fund typically only has one searcher and a few passive financial backers, so a successful transition often includes a buy-in of existing management and employee base. By selling to a search fund, current owners will not give their management team’s jobs away in the sale.
Search funds are typically only looking to buy companies that are valued under $50 million. Search funds are a good option to sell to if your business falls into this category because often private equity firms or other strategic buyers are not interested in purchasing companies in this smaller size range. This can leave businesses with fewer options if they have not identified a successor for the business but still want to keep the company in operation, which is another reason to sell your business to a searcher, where an owner will not have to just close their doors.
Finally, by selling your business to a search fund, specifically an aspiring entrepreneur, you are putting your faith into the next generation of business owners. You are favoring the person who has a true passion and ambition to succeed over someone who simply has knowledge and experience in your particular industry. Maybe you were once the young entrepreneur, and now you want to see the next generation have a similar experience with your company. While it is often an overlooked option, selling your business to a recent MBA graduate through a search fund has many benefits that more traditional routes do not offer.
For more information on this exit strategy, check out the Entrepreneur article listed below: