9 Things You Need to Know about Search Funds

By Alex Hodgkin

A search fund is a vehicle for entrepreneurs to raise funds from investors to search for and eventually acquire a company in the $5 — $30 million price range. As the most popular model in the entrepreneurship through acquisition (ETA) category, search funds attract many young business school students who are interested in both private equity and entrepreneurship. Polsky Center entrepreneur-in-residence and senior advisor of ETA programming at Chicago Booth, Alex Hodgkin, weighs in on the essentials to get up to speed quickly on search funds.

1. As an asset class, they’ve been amazingly successful.

According to the most recent research produced in 2013, the aggregate pre-tax internal rate of return of the search fund asset class through year-end 2013 is 34.9 percent, and the aggregate pre-tax return on invested capital is 10x.

2. The search fund model is over 30 years old.

In 1984, Irv Grousbeck, a professor at Stanford, launched the first search fund by helping a few students secure investments from several alumni to fund their search for, and later acquisition of, a small business.

3. There is no quicker route to becoming a CEO.

The average age of a search fund entrepreneur is 30 years old. Most raise their funding for the search just prior to their business school graduation. By comparison, the average age of CEOs in the S&P 500 is approximately 57.

4. The search fund trend isn’t limited to the coasts.

Chicago is becoming a hotbed for search fund activity. This fall, Booth and Kellogg co-hosted the 2nd annual Entrepreneurship Through Acquisition Conference in Chicago, which was the largest conference on the topic to date, attracting over 300 potential investors, search fund entrepreneurs, students, and alumni.

Additionally, since 2012, 15 individuals or teams of two from Booth have written PPMs and formally sought funding. Of those, 14 were fully funded. That’s a 93% success rate.

5. There is no “perfect” background.

Search fund entrepreneurs hail from a variety of backgrounds prior to business school. Most recent statistics show that the three most common backgrounds are private equity (31%), investment banking (22%), and management consulting (16%).

6. The model is going international.

There is growing interest in search funds around the world. IESE, a business school in Spain, is now co-producing research with Stanford to track international search fund activity. At Booth, teams have been funded in Canada, Mexico, and Brazil so far.

7. Those that can, do. Those that do, also teach.

Courses in entrepreneurship through acquisition are starting to be offered at top business schools and they are being taught by those who know ETA first-hand. At Booth, the two adjunct professors who teach the Entrepreneurship Through Acquisition (ETA) course have had years of experience working with the search fund model in various capacities. Brian O’Connor is an alum who successfully acquired, ran, and sold a company as a searcher, and Mark Agnew is the President of Lou Malnati’s who has worked in and around search funds for over a decade.

The course covers the full life cycle of ETA: from raising money, to supporting the search for a company, to realizing potential as a young CEO, to ultimately realizing value for investors.

8. It is still entrepreneurship, which means it carries a lot of the same risk.

Like any entrepreneurial endeavor, success is never guaranteed. Of the folks that pursue the search fund model, a quarter of them don’t end up finding a suitable business to acquire, and another quarter end up losing money for their investors.

9. Universities often play an active role in finding investors for their searchers.

In early 2015, Booth hosted its first Search Fund Investors Summit, bringing together graduating students, recent alumni and investors. 25 investors from around the country came to hear five search fund teams present their plans. All five presenting teams were successfully funded.


Alex Hodgkin has spent his career as an entrepreneur, strategist, and capital markets specialist, having developed his finance acumen as an investment banker serving companies large and small. He cofounded Intrinsic, a financial advisory firm which he helped grow from a kitchen table concept to one of the largest firms of its kind in the Rocky Mountains, servicing some of the most well-known and well-respected institutional investment firms and privately-held companies in the region. As a steadfast supporter of ETA, he has been instrumental in the creation of the ETA program at Chicago Booth, where he currently serves as entrepreneur in residence and senior advisor of ETA programming. Alex holds undergraduate degrees from Claremont McKenna College and the University of Colorado and an MBA from Chicago Booth. He is also a CFA charterholder.

Alex Hodgkin, MBA ‘14