Most publications credit Irv Grousbeck with the creation of the search fund model and the beginning of search strategies. A former media executive-turned-Harvard professor, Grousbeck created the first search fund in 1984. Search Funds get their name from the initial entrepreneurs who “searched” for companies to acquire with their own capital rather than relying on outside funding sources such as venture capitalists or banks. Since then, search fund activity has grown significantly with more than hundreds successful transactions over three decades.

At Private Market Labs, we consider a search fund to be any small group or individual undertaking a proactive process to find and acquire an existing business based on target factors such as geography, industry, deal size, business type and other criteria. Typically this takes the form of a single-acquisition or multiple-acquisition “search”, where the buyer uses a mix of debt and investor capital to purchase and operate successful small businesses generating meaningful cash flow.

You’ve come to the right place! We’ve put together a whole suite of resources for people looking to get into search. There are two pieces in particular that can be very helpful for beginning searchers:

• An introduction to key terminology. 
• A breakdown of the steps involved in buying a small business (this is the maximum number of steps, some people acquire faster. Fortunately we’re here to help).

First and foremost, buying a business comes with a different operating risk profile. Most people look to buy businesses that already have substantial profits, allowing them to achieve their entrepreneurial goals while still making a meaningful salary. Most startup ventures require substantial investment of time and resources up front, before the founder ever achieves any financial stability. Additionally, most startups fail, meaning that the entrepreneur’s up front investment frequently generates very little in the way of returns.

When you buy a business, you’re taking the personal resources you would have invested in your startup and using them as a downpayment on an enterprise that is already profitable, skipping the painful “0 to 1” part of the process. While buying a business does come with risks (for example, you’ll likely be required to put down your personal assets as collateral on a loan to complete the transaction), the operating risk is substantially lower.

We put together a set of stories, describing the kinds of small business transactions that we see in our industry. Check it out, and see if you recognize yourself in any of these entrepreneurs.

There are a number of options for aspiring small business buyers. The most common one is the SBA 7a program, which is a government-backed loan program used in transactions $5M and under. We partner with a number of SBA lenders at Private Market Labs. Here are conversations we’ve had about the program:

Jarryd Osborne (buy-side broker)

Jared Johnson (SBA lender)

Heather Endresen (SBA loan broker, former lender)

Lisa Forrest and Sarah Andrews (SBA lenders)

There are also a number of ways to buy a business without using an SBA loan. We published on that as well.

After doing your research, your first decision is going to be around the search model you’d like to use. There are “traditional” searches where buyers raise funding from outside investors to buy larger businesses.

There are also “self-funded” searches, where buyers primarily use personal assets and debt to acquire a smaller business with more personal ownership. You can read more about the different types of search.

You’re in the right place! Private Market Labs is the modern, efficient, and technologically-enabled way to find small business deal flow. We focus on deals represented by business brokers. We like these deals because they have motivated sellers who are supported by advisors incentivized to get deals done. As a result, brokered deals close at higher rates than off-market deals. To learn more about the different kinds of deal flow in our space, check out this article and this conversation with Steve Ressler.

Once you have your deal in hand, there are several next steps. People using an SBA loan will want to work with their lender to make sure the deal is doable for the bank. You’ll want to conduct thorough due diligence on your deal to make sure you understand any risks associated with the company itself. We’re partnered with DueDilio to provide just-in-time connections to vetted experts for due diligence. You can request help directly in the platform! Here are some additional resources about the due diligence process:

• How to build a top-notch due diligence team.
• Managing search fund costs.
• How to manage the due diligence process (conversation with the DueDilio founder).