Search Funds and the Family Business Succession Crisis

“Can Search Funds Ease The Family Business Succession Crisis?”

A quick glance at the global business succession crisis, what search funds are, and how they are addressing the succession crisis.

The Family Business Succession Crisis:

[As more and more baby boomers have begun to enter retirement, many of them have begun to encounter an increasingly common problem; who will take up the reins to their business? Many of these boomers have spent much of their entire lives building their business from the ground up. This issue has been pervasive around the world, affecting both small and large sized companies. According to Bloomberg, the value placed on Asian family businesses without a successor in place is worth $22 trillion. Meanwhile in the United States, roughly, 85% of small and medium-sized companies do not have a succession plan, according to Project Equity.]

Search Funds:

[Search funds are investment vehicles through which an entrepreneur raises capital from high-net-worth investors and institutions to acquire a business and install themselves as the Chief Executive. Stanford Graduate School of Business Professor Irv Grousbeck is credited with conceiving the concept back in 1984. Since then, hundreds of search funds around the world have launched and have generated an average annualized return of 33.7% for investors.]

Search Funds Solving the Global Business Succession Crisis:

[The growing business succession crisis has created immense opportunities for both investors and entrepreneurs. In 2017, a record high 86 funds were formed and 17 companies were acquired by search fund entrepreneurs. Since 1984, investors have poured $924 million of equity capital into these investment vehicles, with a total equity value of $5.7 billion for investors. Looking ahead, we can expect the search fund industry to continue to grow as more and more business owners look to find the next generation that will succeed them.]

The Next Generation:

[For baby boomer entrepreneurs struggling to find their next successor, search fund operators provide an attractive option. A significant portion of these operators are recent business school graduates with the skills and experience necessary to lead. The retiring owner gets to liquidate his ownership equity and hand over his life’s work to a capable leader, who can continue to take the business to the next level. This main reason is why search funds have grown exponentially since 1984 and should continue to see this level of success in the near future.]

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