Fundamentals of a Search Fund |
A Search Fund is an investment vehicle that enables one or two entrepreneurs to search for, acquire, and operate one private, profitable small-to-medium sized business (SME).
Terminology
As with most asset classes in finance, it is important to clarify some jargon to avoid any confusion further down the line:
- A Searcher is an entrepreneur seeking to acquire and run an SME.
- A Search Fund is not actually a fund but simply the investment vehicle used by the Searcher.
- Search Capital is the capital required by the Searcher to cover operational expenses (e.g., salary, travel expenses, set-up costs, intern salaries, office space, due diligence costs, etc.) required to complete the search period up to 24 months.
- Acquisition Capital is the capital required at acquisition. Investors can roll in their invested Search Capital into the Acquisition Capital plus a 50% step-up.
- A Unit is a portion of the Search Capital held by investors.
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