Search Fund: Entrepreneurship without Starting from Scratch
Elena Trukhina
International Executive | Entrepreneur | Business Transformation Expert
Amid growing risks associated with launching startups, more and more experienced executives are choosing a different path: entrepreneurship through business acquisition. At the Think Wide conference in Barcelona, Elena Trukhina shared her experience with the Search Fund model — an investment mechanism that enables the acquisition of a stable small or medium-sized business with investor backing secured even before a specific company is selected. This strategy combines managerial autonomy, reduced risk, and high return potential
When people talk about modern entrepreneurship, they usually mean launching startups or starting a business from scratch. But my story is quite different.
I have spent more than twenty years working in international corporations such as Coca-Cola, SABMiller, Nestlé, and Philip Morris, progressing from entry-level positions to roles in general management. My career has spanned many regions — from Switzerland, Europe, and North America to countries in Africa, Oceania, Israel, and Russia.
After completing an Executive MBA at the Swiss business school IMD, I decided to become an entrepreneur. During my studies, we took a study trip to Silicon Valley and participated in launching real startups. This gave me a clear understanding of the risks involved in building a business from scratch. It was then that I realized I wanted to take a different path — not to create a company, but to acquire an existing business.
While exploring this approach, I discovered the Search Fund model — and literally fell in love with the idea of entrepreneurship through business acquisition. I became so passionate that instead of buying just one company, I was involved in deals to acquire 16 companies, helped many entrepreneurs find their “own” business, and attracted investors’ attention to this asset class
Why is buying a business a smart idea?
When you create a startup, you face significant risks: an unknown market, unproven business model, and lack of steady income. Most startups — around 90% — fail within the first three years. By buying an existing business, however, you acquire a proven system, a cash flow from day one, and reduce your risks. The chances of success are much higher here: about 70% of such businesses continue to grow and develop successfully
The problem of succession and opportunities for entrepreneurs
The key to successful business acquisition lies in the issue of succession. Worldwide, 90% of companies are small and medium-sized enterprises (SMEs). Currently, Europe and the USA are experiencing a large-scale transfer of ownership as the baby boomer generation, who founded these companies, are retiring
I have spent more than twenty years working in international corporations such as Coca-Cola, SABMiller, Nestlé, and Philip Morris, progressing from entry-level positions to roles in general management. My career has spanned many regions — from Switzerland, Europe, and North America to countries in Africa, Oceania, Israel, and Russia.
After completing an Executive MBA at the Swiss business school IMD, I decided to become an entrepreneur. During my studies, we took a study trip to Silicon Valley and participated in launching real startups. This gave me a clear understanding of the risks involved in building a business from scratch. It was then that I realized I wanted to take a different path — not to create a company, but to acquire an existing business.
While exploring this approach, I discovered the Search Fund model — and literally fell in love with the idea of entrepreneurship through business acquisition. I became so passionate that instead of buying just one company, I was involved in deals to acquire 16 companies, helped many entrepreneurs find their “own” business, and attracted investors’ attention to this asset class
Why is buying a business a smart idea?
When you create a startup, you face significant risks: an unknown market, unproven business model, and lack of steady income. Most startups — around 90% — fail within the first three years. By buying an existing business, however, you acquire a proven system, a cash flow from day one, and reduce your risks. The chances of success are much higher here: about 70% of such businesses continue to grow and develop successfully
The problem of succession and opportunities for entrepreneurs
The key to successful business acquisition lies in the issue of succession. Worldwide, 90% of companies are small and medium-sized enterprises (SMEs). Currently, Europe and the USA are experiencing a large-scale transfer of ownership as the baby boomer generation, who founded these companies, are retiring
Every year, around 450,000 businesses change owners in Europe. The situation in America is similar: 70% of business owners plan to transfer their companies within the next 10-15 years. However, more than half of them do not know to whom they will pass their businesses, as there are no interested heirs within the family
This issue opens up a huge field of opportunities for those ready to acquire and grow existing companies
What is a Search Fund and how does it work?
Search Fund is a little-known investment tool created at Stanford in 1984. Its essence lies in the fact that a person planning to acquire a business first raises a pool of investors even before a specific company is found.
Imagine you have 20 years of experience in the medical equipment industry. You declare yourself a "Search Fund" and gather investors interested in investing in a potential business in this field. At this stage, investors provide funding so you can fully dedicate yourself to finding a suitable company: paying salaries to yourself and your team, hiring consultants, and conducting financial and legal due diligence.
Once you find the right company, investors provide a second tranche of financing for the actual acquisition. Typically, such a deal is structured as follows: 50% debt (loan) and 50% equity from the investors
What is a Search Fund and how does it work?
Search Fund is a little-known investment tool created at Stanford in 1984. Its essence lies in the fact that a person planning to acquire a business first raises a pool of investors even before a specific company is found.
Imagine you have 20 years of experience in the medical equipment industry. You declare yourself a "Search Fund" and gather investors interested in investing in a potential business in this field. At this stage, investors provide funding so you can fully dedicate yourself to finding a suitable company: paying salaries to yourself and your team, hiring consultants, and conducting financial and legal due diligence.
Once you find the right company, investors provide a second tranche of financing for the actual acquisition. Typically, such a deal is structured as follows: 50% debt (loan) and 50% equity from the investors
Which companies are suitable for acquisition through a Search Fund?
These are usually companies with an EBITDA ranging from 1 to 5 million dollars. Stable cash flow, low capital expenditures, and good profit margins are important. The business should be ready for growth and improvements in operational efficiency
Why is a Search Fund attractive to investors?
The appeal is primarily due to the high effective return (IRR of around 35%) and the ability to diversify risks. Unlike venture capital investments, where bets are placed on a hypothesis or a product, here investors bet on an experienced entrepreneur capable of effectively growing an already proven business.
Interestingly, Spain has become the European leader in the number of successful Search Fund deals. The main reason is the active support of the model by IESE Business School, around which a community of investors and entrepreneurs has formed
These are usually companies with an EBITDA ranging from 1 to 5 million dollars. Stable cash flow, low capital expenditures, and good profit margins are important. The business should be ready for growth and improvements in operational efficiency
Why is a Search Fund attractive to investors?
The appeal is primarily due to the high effective return (IRR of around 35%) and the ability to diversify risks. Unlike venture capital investments, where bets are placed on a hypothesis or a product, here investors bet on an experienced entrepreneur capable of effectively growing an already proven business.
Interestingly, Spain has become the European leader in the number of successful Search Fund deals. The main reason is the active support of the model by IESE Business School, around which a community of investors and entrepreneurs has formed
Useful resources and communities on Search Fund
Useful resources and communities on Search Fund:
IESE Business School (Barcelona)
Community:
IESE Business School (Barcelona)
- International Search Fund Center
- 6th International Search Fund Conference
- 2024 International Search Fund Study
Community:
- A specialized community of Search Fund entrepreneurs, investors, and brokers