Why Most Search Funds Fail
94 new funds in 2023.1 Acquisition rates stuck at 57%2 since 2014, down from 66%2 historically. More searchers, same number of quality businesses, declining odds for everyone. Why?
Signal Traps
#1: LinkedIn celebrates wins, hides failures. One blue-chip MBA spent three years on a declining healthcare deal before walking away with nothing. A duo-HBS team lost a $4M EBITDA deal three weeks before closing due to accounting fraud. These stories don’t make LinkedIn.3
#2: MBA criteria chases perfection that doesn’t exist. High margins, growth, recurring revenue, sub-$5M price, limited competition. Pick three. One failed searcher admitted if he’d been open to buying landscaping shops, he’d have closed. Instead, he chased unicorns and never acquired anything.4
#3: Broker deals are 30+ buyer auctions. Quality gets picked off immediately. What’s left gets bid too high. Yet searchers grind broker teasers because it feels productive. Reality: 88% of successful deals are proprietary, not brokered.5
Founder fatigue
After 12-18 months, searchers capitulate. Initial criteria of $2-5M EBITDA becomes “$600K is fine.”3 Average searcher signs three LOIs before closing, 15 months of drain before real work begins. Median equity outcome at exit? $2-4M, not the $10M fantasy.6
“Me too” buyers chasing stale deals
Everyone chases HVAC and MedSpas because LinkedIn made them hot. One owner rejected a searcher for being “open to acquiring ‘any’ small business” with zero segment knowledge.3 Owners get dozens of generic approaches and smell desperation instantly.
Saturation Reality & Question That Matters
The 35.1% IRR and 4.5x ROI prove search funds work.2 But distributions are wildly skewed, with 11% achieving 10x+ returns while 31% of acquisitions result in losses.2 Increasing competition since 2014 structurally changed the game. More searchers, same quality businesses, declining acquisition rates. That’s not temporary. That’s the new normal.
The search fund boom isn’t validation. It’s saturation. The model works, but only for those willing to do what 90% won’t: specialize deeply, source proprietary deals, leverage genuine expertise, stay patient, and maintain quality standards when everyone else capitulates.
Launching in 2025 with a generic MBA playbook, evaluating broker deals across multiple industries, hoping to find the “perfect” business at a reasonable multiple? That won’t give you an edge.
The searchers who win won’t follow conventional wisdom. They’ll understand that differentiation isn’t a nice-to-have. It’s the only strategy that survives contact with reality.
The data doesn’t lie. Neither do the casualties.
Footnotes
1 Smash.vc ‘Search Fund Statistics’
2 Standford GSB (2024) ‘Search Fund Study: Research Overview’
3 RiverStoneReporting (2024) ‘24 Tips For Search Funds During 2024’
4 Giff, C. (2018) ‘5 Lessons from a Failed Search Fund’
5 Relay Investments (2017) ‘Building Truly Proprietary Deal Sourcing’
6 Raptor GLobal (2024) ‘Search Fund Thesis: Which inning are we in?’
All the other voices mean nothing. Personal aspirations, personal interests and patience are drivers to increase successes.
Insightful read. I guess there’s too many hunters and not enough game.