What Is a Search Fund? How the Model Works and What Investors Look For
Written By: Ryan Morrison
Based on a Navigating Wealth conversation with Max Artz, Partner at Peterson Partners.
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Search funds are one of the best-performing corners of private markets that almost no one outside the ecosystem has heard of. The model backs a single individual, often a business-school graduate in their thirties, to go find and buy one good small business and then run it. Max Artz is a partner at Peterson Search Partners, which spun its dedicated search strategy out of Peterson Partners in 2017 after the firm had been investing in search since the mid-1990s. His account of how the model works, why its returns have persisted for four decades, and what separates a good search-fund manager from a careless one is one of the clearest explanations of this asset class available to individual investors.
A search fund is an investment vehicle in which an entrepreneur, called a searcher, raises a small amount of capital (often around $500,000) to spend roughly two years looking for a privately held business to buy. Once the searcher identifies a target, the original backers get the right to fund the acquisition itself. The model sits between venture capital and private equity: rather than backing an idea or buying a company outright, investors back a person to acquire and operate an established, profitable small business, typically one with an owner nearing retirement and no succession plan.
Key Takeaways
A search fund backs a person, not a pre-selected company. Investors fund roughly two years of search, then get the right to fund the acquisition the searcher finds.
The Stanford search fund studies have tracked the asset class since 1984 and shown aggregate returns in the mid-30% IRR range, with average multiples around 3x to 4x, though those figures are aggregate and historical, not a promise.
Unlike venture capital, returns do not follow a power law. Most deals return roughly 2x to 4x because the businesses cash flow and carry only modest leverage, with the occasional 7x to 10x outlier.
The typical target is an unglamorous, resilient small business, an average of 26 years old, with $2 million to $5 million in EBITDA, bought at roughly 6.5x from an owner who cares about legacy as much as price.
For investors choosing a search-fund manager, two questions matter most: who the manager co-invests with, and how disciplined their portfolio reporting is.
What Is a Search Fund?
A search fund is a two-stage investment vehicle. First, investors fund a searcher's roughly two-year hunt for a business to acquire; second, those same investors get the right to fund the acquisition itself. It is one recognized path within entrepreneurship through acquisition (ETA), the broader category of buying an existing business rather than starting one.
Artz frames it by position: it sits between venture capital and private equity. In private equity, a firm typically finds and underwrites a business, then may bring in an operator to run it. In venture capital, investors back a founder with an idea and a plan to build something new. A search fund is a third thing. Investors back a person, usually a thirty-something MBA graduate (though, as Artz stresses, not necessarily), who wants to run their own company but does not have a startup idea and is not yet seasoned enough to lead a large buyout.
That searcher raises a relatively small pool of capital, on the order of $500,000, which funds roughly two years of living expenses and search costs while they look for a business to buy. When they find one, they bring the deal back to the same investors who funded the search, and those investors decide whether to fund the acquisition. The distinctive feature is the sequencing: the capital to search comes well before anyone knows which company will be bought.
Long Angle has co-invested in the search space with Peterson, so this topic is one members have direct exposure to. For the definitional groundwork and the historical data in one place, our guide to how search funds work and what the returns data show is the companion reference to this conversation, which focuses more on the investor's-eye view of picking a manager.
Watch the Full Conversation
This article draws on a Navigating Wealth conversation with Max Artz of Peterson Search Partners, where we discuss what a search fund is, why the returns have persisted for decades, what kind of business a searcher targets, and how investors should evaluate a search-fund manager. Watch the full episode for the complete discussion, including the live audience questions.
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Max Artz is a partner at Peterson Search Partners. He began his career in banking at the Royal Bank of Scotland, spent nearly three years in manufacturing in China, and attended Stanford Graduate School of Business, where he met Joel Peterson, founder of Peterson Partners. Rather than run his own search, he joined Peterson in 2017 to lead and spin out its dedicated search-fund strategy, backed by dedicated limited partners, building on investing the firm had done in the space since the mid-1990s. Long Angle has invested alongside Peterson in the search space. Nothing in this article is investment advice.
How the Search Fund Model Works
The model runs in two phases with distinct economics. In the search phase, investors fund the searcher's costs for about two years. In the acquisition phase, those investors fund the purchase of the business the searcher finds, and the searcher earns equity by hitting return thresholds for the investors.
On the searcher's economics, Artz lays out the standard structure. The search-stage CEO typically earns 25% of the upside once investors have received their capital back plus a preferred return of roughly 6% to 8%. After that hurdle, the searcher keeps about 25% of every additional dollar returned to investors. The exact mechanics involve vesting, usually split across finding the deal, operating the business, and hitting long-term returns, but the headline is that the searcher's payout is tied directly to investor outcomes. For a searcher who acquires a business and holds it five to seven years, Artz says the average successful outcome lands somewhere around $8 million to $10 million, though he is careful that this figure moves depending on how you measure it.
On the investor's side, the fund structure looks different from a typical buyout fund because the checks are small and numerous. A single search fund vehicle might hold 25 to 30 portfolio companies, because each individual acquisition is modest in size. That, in turn, forces a distinctive cap-table structure: the equity in any one deal is spread across several investors rather than concentrated in a single lead. Artz explains that no single firm can give board-level attention to 30 companies at once, so firms rely on a stable group of a couple dozen repeat co-investors, taking the lead role on some deals and a supporting role on others.
This club-deal ecosystem is central to how the model scales. Because the same firms invest together over and over, across five, seven, or ten years, there is deep trust and a shared read on which searchers and which deals are worth backing. It is closer to the referral dynamics of venture capital than to the standalone underwriting of buyout private equity, a point that becomes important when it comes time to evaluate a manager.
Search Fund Returns and Why They Persist
The Stanford Graduate School of Business search fund studies have tracked the asset class since 1984 and reported aggregate returns in the mid-30% IRR range with average multiples around 3x to 4x. These are aggregate, historical figures across the studied universe, not a forecast for any individual fund.
Artz attributes the durability of those returns to three structural features. First, the businesses are steady. By the time Peterson invests, the average company has been operating for about 26 years, which means it has survived multiple economic cycles and is unlikely to simply collapse. The base rate of total failure is low. Second, these are off-market deals bought at off-market prices. Many owners are not trying to squeeze out the last turn of valuation; they care about legacy, employees, and continuity, and will accept a lower price to get the right steward. That gap between what the business could fetch in a competitive auction and what the searcher pays is a meaningful part of the return. Third, the businesses are usually under-managed. An owner running a comfortable lifestyle business for years has often left obvious value on the table: an outdated website, weak search engine optimization, sales-compensation plans that no longer make sense. A motivated operator pouring energy into those gaps can drive real growth.
The return profile is different from venture capital in a way worth understanding. Artz is explicit that search does not follow a power law. In venture, one enormous winner can carry an entire fund while most investments go to zero. In search, most outcomes cluster around 2x to 4x, because the businesses generate cash, are bought at reasonable multiples, and carry only modest leverage, typically 25% to 40%. Roughly one deal in ten produces an outsized 7x to 10x result, and those outliers lift the aggregate IRR, but the median outcome is a solid multiple rather than a moonshot or a loss.
The natural question is why decades of mid-30% returns have not been competed away. Artz's answer is that the model is genuinely hard to scale. The work is human-sized: changing the culture of a business where people have done things the same way for 15 years, upgrading systems, retraining a sales force, all through on-the-ground conversations. That does not scale into a billion-dollar fund, which is why the strategy stays fragmented across many small checks and many operators. He also concedes that lowered barriers to entry have compressed average returns somewhat, as ETA has spread from two business schools to dozens, but he argues the best searchers remain as capable as ever.
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What a Search Fund Buys: The Target Business
The classic search fund target is an unglamorous, durable small business with $2 million to $5 million in EBITDA, bought at roughly 6.5x earnings, growing at two to three times GDP, with a diversified customer base and an owner who lacks a succession plan.
Artz describes them as the businesses you drive past on the highway: electricians, sign makers, cold-storage facilities, sprinkler repair, vacation-home operators. He points to the services that keep commercial buildings compliant, elevator repair, pond maintenance, commercial window cleaning, HVAC, as an appealing category, because they are required rather than discretionary and represent a small, sticky line item for the customers who pay for them. These are the small and mid-sized businesses that make up the backbone of the economy, resilient and profitable but rarely exciting.
The buy box has clear boundaries. Peterson looks for businesses with EBITDA margins above roughly 20%, top-line growth of about 5% to 7%, and at least $1.5 million to $2 million in cash flow, enough that the first couple of years can absorb reinvestment while revenue keeps climbing. Just as important is what search funds avoid: lumpy revenue or hockey-stick growth that commands high multiples, and anything consumer-facing. Artz says the search world generally stays away from e-commerce, retail, and consumer businesses, because the buyers do not consider themselves experts there. A useful test he offers is to ask who the payer is: a commercial insurance carrier or another business is a very different risk profile from an individual consumer pulling out a wallet.
The reason these owners sell below market deserves emphasis, because it is the crux of the model. Many owner-operators in their seventies are not running a banked auction. They have heard unflattering things about private equity and do not want the company's name changed, its culture overhauled, or long-tenured employees discarded. They frequently want to stay involved in some capacity, as a minority owner, board member, or advisor. A searcher offers a succession plan that preserves the legacy, which is often worth more to the seller than an extra turn of valuation. For the seller's perspective on this dynamic, our conversation on selling to private equity and what founders should expect covers the alternative these owners are deliberately turning down.
The Searcher: Who Does This and Why
The hardest part of search fund investing is judging the searcher. Investors are not betting on someone who is already a great operator; they are betting on potential, coachability, and the person the searcher will become over the five to seven years they run the business.
Artz is candid that this is the question Peterson finds hardest to answer, and that they do not have a perfect record. Because the searcher is often in their thirties with no experience running a company, and will soon be asking employees who have worked somewhere for decades to change how they operate, the evaluation leans on evidence of character rather than a finished résumé. What have they done that was genuinely hard? How do former managers and peers describe them: as someone indispensable, someone who took on more than was asked? Academic pedigree is close to table stakes, useful but not the differentiator.
A specific screen Artz applies is what he calls self-selection. One of his first interview questions is what the person would be doing if they were not pursuing search. A strong candidate is running toward search: they have studied the model deeply, talked to dozens of searchers, and formed an industry thesis. A warning sign is a candidate who seems to be running away from something else, who did not get a return offer somewhere or is defaulting into search because other options fell through. The distinction between running toward the model and defaulting into it is, in his experience, one of the more reliable early signals.
The motivations that hold up are rarely only financial. Artz notes that many searchers come from families with a business background, or discovered during a prior job that they loved working directly with a company's operations, and want genuine ownership rather than an advisory seat. Interestingly, the model also works well for people outside the classic profile. He describes strong outcomes with searchers in their forties and fifties who knew an industry cold, including one who had spent 12 years as the number two at a disaster-restoration business and simply knew the work better than any MBA could. The common thread is not age or credential but a real, earned edge in the specific business being bought.
How to Evaluate a Search Fund Manager
For an investor choosing a search-fund manager, two questions matter more than a headline return figure: who the manager co-invests with, and how rigorous their portfolio reporting is. Both flow directly from how the model operates.
The co-investor question comes first because access is the real constraint. Artz explains that the strongest searchers have far more investor demand than cap-table space: 50 or 60 investors may compete for seven or eight spots on a top searcher's deal. Getting into those deals depends on relationships and referrals, much like venture capital, which means a manager's network of co-investors is a direct proxy for the quality of deals they can access. So the question to ask a prospective manager is concrete: who have you co-invested with, and how do you get into the best searchers' cap tables? A manager plugged into the established group of repeat co-investors is seeing better deals than one operating on the edges, and a decade of shared history among those firms is hard to replicate.
The reporting question is more mundane but, Artz argues, genuinely predictive. Search fund portfolios are messy: many small companies, complicated tax documents, and the perennial challenge of getting clean, timely numbers out of 25 or 30 small businesses. He has heard of newer investors who raised capital, deployed it, and then went quiet for months because they had no reporting infrastructure. So he pushes investors to ask who is doing the reporting, how often, and at what level of detail. Weak reporting is not just an administrative annoyance; it is a signal that the manager may lack the operational discipline the strategy requires.
He is direct that the space has become more competitive and that a wave of new entrants, including family offices and former searchers turned capital allocators, has arrived. That is not automatically a problem, but it raises the stakes on diligence. The combination of a deep co-investor network and disciplined reporting is what separates a manager who can sustain the model's historical returns from one who is riding the theme. For a sense of how disciplined allocators size positions like this within a broader alternatives sleeve, the 2026 High-Net-Worth Asset Allocation Report shows how a large group of investors is positioned across asset classes.
Where do investors compare notes on search-fund managers and club-deal co-investors without a sales pitch attached?
Long Angle members evaluate search funds, growth equity, and other private-market strategies together, sharing diligence and co-investment experience in a vendor-free setting. No one in the room is raising a fund from you.
Self-Funded Search and Other Paths Into ETA
Traditional search is one point on a spectrum of entrepreneurship through acquisition. At one end sits self-funded search, higher risk and higher ownership; in the middle, traditional funded search; and at the other end, more supported models like entrepreneur-in-residence programs. Artz frames the whole spectrum as different buckets of risk and reward.
In self-funded search, the entrepreneur uses their own capital and debt rather than raising a fund. Artz notes that the U.S. Small Business Administration offers loan programs that can finance a large share of an acquisition on favorable terms, which lets a self-funded searcher own essentially all of the equity and run the business as sole decision-maker. The tradeoff is real: SBA loans generally require a personal guarantee, so if the business struggles, the searcher is personally on the hook. It is the highest-risk, highest-ownership end of the spectrum.
Traditional funded search, the model Peterson runs, sits in the middle. The searcher gives up a substantial share of the economics to investors but gains capital, a real board, pattern recognition from experienced backers, connections, and know-how. At the more supported end are entrepreneur-in-residence or "CEO-in-training" programs run by some firms, where the searcher is effectively an employee, receiving more leads, more oversight, and more support in exchange for less upside. Artz is careful not to rank these as better or worse. He argues the searcher universe sorts itself neatly by risk tolerance: someone suited to a self-funded search would feel suffocated in an entrepreneur-in-residence program, and someone who would never personally guarantee a loan because they have kids and a mortgage is a natural fit for the supported model.
His advice to someone considering the searcher path, particularly a mid-career professional with capital and deep industry knowledge, is to test it cheaply before committing. Identify the two or three lanes where you have a genuine unfair advantage, whether by industry, geography, or customer type, and start calling business owners to see whether you can build a pipeline and connect with sellers. That costs nothing and reveals quickly whether the work suits you, well before you sell the farm to fund a search. For the broader picture of where a strategy like this fits among private-market options, our overview of what growth equity is and how it compares to other private strategies maps the adjacent terrain.
Frequently Asked Questions
What is a search fund?
A search fund is an investment vehicle in which an entrepreneur (a searcher) raises a small amount of capital, often around $500,000, to fund roughly two years of searching for a privately held business to acquire. Once the searcher finds a suitable business, the original investors get the right to fund the acquisition. The searcher then runs the business, typically for five to seven years, and earns equity by generating returns for investors. It is a recognized form of entrepreneurship through acquisition.
How do search funds make money for investors?
Search fund returns come from buying established, profitable small businesses at reasonable multiples, often below what a competitive auction would fetch, and then growing them. Because the businesses generate cash flow and carry only modest debt, returns do not depend on a single big winner. The Stanford search fund studies have reported aggregate returns in the mid-30% IRR range and average multiples around 3x to 4x since 1984, though those are aggregate historical figures, not a guarantee for any individual fund.
What is the difference between a search fund and private equity?
Traditional private equity finds and underwrites a specific business, often using significant leverage and sometimes installing a new management team. A search fund instead backs a person, usually a first-time operator, to find and then run a business, with much smaller deal sizes (frequently $2 million to $5 million in EBITDA) and modest leverage. Search funds also tend to buy from owner-operators who value legacy and continuity, which is why they often sell below the price a private equity auction might reach.
How much money does a searcher make?
A searcher typically earns about 25% of the upside after investors receive their capital back plus a preferred return of roughly 6% to 8%, usually subject to vesting tied to finding a deal, operating the business, and hitting long-term returns. According to Max Artz of Peterson Search Partners, a searcher who successfully acquires and runs a business for five to seven years earns, on average, somewhere around $8 million to $10 million, though the figure varies with how it is measured and with the outcome of the specific deal.
What kind of business does a search fund buy?
The classic target is an unglamorous but resilient small business, on average around 26 years old, with $2 million to $5 million in EBITDA, growing at two to three times GDP, with a diversified customer base and healthy margins. Common examples include B2B and residential services such as HVAC, elevator repair, commercial cleaning, pest control, and specialized manufacturing. Search funds generally avoid consumer-facing businesses, e-commerce, retail, and companies with lumpy or hockey-stick revenue.
What is entrepreneurship through acquisition (ETA)?
Entrepreneurship through acquisition, or ETA, is the broad path of becoming a business owner by buying an existing company rather than founding one. Search funds are the best-known form, but ETA also includes self-funded search, where an entrepreneur uses personal capital and SBA loans to buy a business outright, and more supported models like entrepreneur-in-residence programs. The paths differ mainly in how much risk, ownership, and support the entrepreneur takes on.
Final Thoughts
Search funds occupy an unusual place in private markets: a decades-long record of strong aggregate returns built not on financial engineering or a handful of miraculous winners, but on buying sturdy, overlooked small businesses at fair prices and running them well. The model works precisely because it is hard and does not scale, which is also why the returns have not been competed away.
For an investor, the lesson from Max Artz is that the headline IRR is the least useful number in the room. What matters is whether a manager sits inside the trusted circle of repeat co-investors that gets access to the best searchers, and whether they have the operational discipline to report honestly on a messy portfolio of small companies. Get those two things right, and search funds are a genuinely differentiated way to own the backbone of the economy. Get them wrong, and the historical returns are no help at all.
Deciding whether search funds belong in your portfolio, and which managers to trust, is easier with peers who have already done the diligence.
Long Angle members compare notes on search-fund managers, co-investment opportunities, and other private-market strategies, in a setting without solicitation. See how members are putting these ideas to work.
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