The Emergence of Search Funds: What Business Owners Need to Know

If you’re a small business owner in the U.S., you may have noticed a rising wave of younger buyers reaching out—eager, energetic, and often holding MBAs. Many are part of the growing world of search funds, a model that’s gaining real traction as an alternative to traditional startups.

Instead of starting a business from scratch, search fund entrepreneurs raise capital to buy an existing one—ideally one that is profitable, stable, and run by a retiring owner. On paper, it sounds great: the legacy lives on, the employees stay in place, and the new owner gets a shot at running something meaningful.

But like anything with momentum, the model is now evolving quickly—and not always in ways that benefit the seller.

What Is a Search Fund?

A search fund is a type of investment vehicle designed to back first-time operators—often recent MBA grads or former investment bankers—on a mission to acquire and operate a single business. After acquiring the business, the entrepreneur steps in as the new CEO, replacing the previous owner who typically exits fully.

Historically, search funds have generated strong returns. According to Stanford’s latest data, the aggregate pre-tax internal rate of return (IRR) is 37%, with an 8.4x return on invested capital. Those numbers have sparked real interest, and the search fund model is now being taught at top business schools, featured on popular podcasts, and spotlighted on social media.

This momentum has also drawn in capital—lots of it.

The Current Landscape: 700+ Search Funds and Counting

There are now more than 700 active search funds in the U.S. alone. The majority are being driven by young, first-time entrepreneurs who are “searching” for their first acquisition. And in many cases, they’re not from the cities or industries they’re targeting.

Searchers are often prepared to move to wherever the deal takes them, regardless of whether they’ve ever lived—or worked—there before. That means many small business owners are now fielding calls from people who not only lack operational experience but may also have no ties to the local community.

One business owner put it simply: “It feels like they’re trying to buy a lottery ticket.”

A Model Designed for Replacement

Make no mistake—this model is structured to replace you.

That may work well for an owner who is fully retiring and looking to walk away cleanly. But for those who want to stay involved, mentor a successor, or slowly phase out over time, most search fund deals simply don’t accommodate that.

The goal of the search fund is to install the searcher (operator) as the new CEO as quickly as possible. The existing management team is typically replaced, and the new owner is now accountable to their investors—many of whom expect a sizable return, often within 5–7 years.

The Role of Brokers: A Transactional Experience

Another evolution of the model? The increased use of brokers.

Brokers are now playing a central role in matching searchers with small business owners, often accelerating deals before real relationships can be built. This creates a more transactional feel—less about building trust and more about closing the deal.

For some sellers, this is jarring. After decades of running a family business, the process of handing it off can feel rushed, impersonal, and investor-driven.

Who Should Consider Selling to a Search Fund?

To be clear, search funds can be the right fit—especially for business owners who are ready to fully exit and want to hand the reins to someone hungry and ambitious.

But if you’re looking to:

• Stay involved in the business

• Gradually transition leadership

• Preserve your company culture

• Partner with someone embedded in your community

…then a traditional search fund might not be the best option.

It’s important to know that these funds are not the only path forward. You can partner with other business owners. You can transition leadership internally. You can sell to a local capital group focused on building long-term value—not flipping businesses for short-term gains.

Why Legacy Holdings Is Paying Attention

At Legacy, we believe the search fund model is breaking—and needs to be reimagined.

The majority of the activity in the space is being driven by 700+ search funds backing entrepreneurs looking to buy and run a company—often like buying a lottery ticket. These aren’t always strategic stewards of legacy; they’re operating under pressure to deploy capital and drive investor returns quickly.

We think there’s a better way.

Our goal is to build local, long-term networks of essential businesses—owned and operated by people who understand their region and value the customer and employee relationships already in place.

We’re not here to replace you. We’re here to partner with you.