Search funds are a method for an individual to acquire a small to medium enterprise (SME) through financing from a group of investors. This innovative model has thrived in the United States, with over 400 search funds raising a total of $1.4 billion. 

The search fund model relies on three key roles: the 'coach,' the 'jockey,' and the 'racehorse.' Investors, acting as coaches, assist the entrepreneur (the jockey) with the selection, acquisition, and development of an SME that demonstrates strong fundamentals and untapped growth potential (the racehorse). This structure allows entrepreneurs to take over significant SMEs while ensuring the seller passes their legacy to a person likely to respect it more than a larger corporation or fund.

The ideal search fund candidate is typically an entrepreneur aged 35-40, possessing a strong resume, ambition, and limited financial resources. Holding an MBA is advantageous. On average, it takes around two years to find the right company, requiring about €350,000 in funding from private investors to support this search phase.

The search fund community is relatively small, making personal connections crucial. Convincing a business angel can open doors to further networking opportunities. The goal is to engage around ten investors, each contributing approximately €30,000 for the search phase, and subsequently deciding whether to invest in the acquisition of the identified company. Typically, equity funding is complemented by bank debt.

Eligible companies for search funds are generally profitable with predictable income streams, avoiding start-ups that experience rapid cash burn. Candidates are encouraged to explore the 'hidden market' of businesses not currently listed for sale by filtering options based on revenue, profitability, and the age of the CEO (preferably over 50). Success lies in contacting and persuading these business owners to sell their companies.

Reference: https://hecstories.fr/fr/reprenez-une-entreprise-grace-aux-search-funds/