SFA was created to minimize the risks searchers face while dramatically increasing the likelihood and magnitude of their success. SFA works with a select group of entrepreneurs to help each of them find and acquire an excellent company and manage it successfully as an equity-owning CEO. Our team of dedicated professionals provides personalized coaching and support to SFAs searchers and CEOs from the beginning of their search and throughout their tenure as CEO of the company they acquire. The traditional search fund model has consistently demonstrated unacceptably high failure rates for searchers. While every searcher believes they will succeed, the statistics show that 70% of searchers fail. Searchers lose time learning how to search, struggling to identify good companies, and pursuing poor acquisition candidates. What is worse, searchers buy businesses that they should never have acquired and then struggle to create equity value: thus they build little or no personal wealth despite years of hard work.
Today, the number of active search funds is at an all-time high, according to Stanford’s 2018 Search Fund Study. A record 17 companies were acquired by search fund entrepreneurs in 2017, according to the study. Since the first search fund was formed in 1984, investors have put $924 million of equity capital into these investment vehicles, with a total equity value of $5.7 billion for investors and $1.5 billion for entrepreneurs.
In the traditional search fund model, one or two people — typically recent MBAs — raise capital from a group of investors to find, acquire, and run a private company.
Though search funds are a niche investment model to be sure and these are small numbers, they represent significant growth. The chart below, from Stanford’s study, shows the steady rise in funds raised and acquisitions over the past several years (the number of exits has not followed the same trend).
As the number of search funds has increased, alternatives to the model have emerged. One is the so-called search fund “accelerator,” in which the aspiring entrepreneur is employed by a single firm which provides capital and advises on the search (rather than the searcher amassing a group of investors to fund their search as is in the traditional model). This is one form of what’s referred to as the “captive” model, in which searchers are funded by a single source.
Search fund accelerators typically recruit a number of searchers each year, giving each member of the cohort the opportunity to share resources as well as providing general education and advising services.
How the Accelerator Model Works
“We’re halfway between a search fund and an operator-centric private equity fund model,” says David Slenzak, Co-Founder and Managing Partner of Broadtree Partners. “All our searchers are employees of Broadtree Partners and get economics in their deals very much like a traditional search fund.” Broadtree raises money from LPs to back its organizations, and the searchers go back to those same LPs for the equity capital on each of their deals.
“We have the ability to go beyond our LP pool for gaps if those exist,” says Slenzak. Each year, Broadtree brings on around six searchers to join the team. The firm currently has 10 searchers on board.
Slenzak acquired a Charleston-based healthcare technology company, Implementing Technologies, via a search fund in 2010 and successfully exited the company in 2016, the same year he founded Broadtree. “I came up with the model for Broadtree based on the pains I experienced when I was a searcher. I had to recreate the wheel — create my own CRM system, develop my own list of contacts and targets, contact people my colleagues had already contacted who were not useful, make the mistakes my friends had already made.”
At the same time, Slenzak found other searchers — who soon became his friends — to be highly collaborative. “It’s not a competitive dynamic. Everyone wanted to share their experiences and best practices. I saw an opportunity to formalize some of that.”
Timothy Bovard, the founder and CEO of Search Fund Accelerator (SFA), came to a similar conclusion after doing extensive research on search funds as a professor of entrepreneurship at INSEAD. “Over 30% of searchers fail to acquire a company in two years, and then there’s another 28% who buy a company, but earn zero money. You juxtapose that with the investors who are, in most cases, making phenomenal returns. The traditional model is very much tilted in favor of investors.”
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