2020 Search Fund Study: Key Trends and Developments
Search funds have become an increasingly popular entrepreneurial path since their inception in 1984. The 2020 Search Fund Study, conducted by the Stanford Graduate School of Business, provides comprehensive data and insights into the growth and changes within this unique investment vehicle. This article explores the key trends and developments from the latest study, highlighting the evolution of search funds, the demographics of searchers, and shifts in popular industries for acquisitions.
Growth and Popularity of Search Funds
The 2020 study reports that search funds continue to attract entrepreneurs and investors, offering a relatively fast track to becoming an owner-CEO. In 2018 and 2019, a record number of 88 new search funds were launched, reflecting the robust and growing interest in this model. This surge underscores the increasing recognition of search funds as a viable and rewarding entrepreneurial path.
Demographic Shifts Among Searchers
The demographics of searchers have shown both consistency and evolution over the years. The typical searcher profile remains similar to previous studies, with 84% holding an MBA and a median age of 32. However, there has been a notable increase in the diversity of academic backgrounds and professional experiences among searchers. For instance, there has been a slight rise in searchers with investment banking backgrounds and a decrease in those from private equity.
One significant demographic trend is the increased representation of women in search funds. Although still underrepresented, women accounted for 7% of searchers who began their search in 2018 or 2019. The study also highlights the intention to collect more data on the race and ethnicity of searchers in future studies to better understand and promote diversity within the search fund community.
Search Strategies: High-Volume vs. Deep-Dive
The 2020 study provides new insights into the search strategies employed by searchers. There are generally two primary approaches: high-volume, opportunistic searches and deep-dive searches focused on specific industry segments. The latest data shows an even split between these strategies, with 52% of recent searchers opting for a deep-dive approach. This is an increase from 41% in the 2016-2017 period.
Deep-dive searches involve a more concentrated effort in understanding and targeting specific industries, which can lead to fewer but more targeted acquisition opportunities. Conversely, high-volume searches cast a wider net across multiple industries, identifying a larger number of potential targets. The choice of strategy often reflects the searcher's background, network, and preferences, with each approach offering distinct advantages and challenges.
Industry Shifts in Acquisitions
The industries targeted and acquired by search funds have evolved significantly over time. The 2020 study highlights a shift towards healthcare, software, and tech-enabled services. Healthcare, in particular, has seen a marked increase in popularity, with various segments, including healthcare providers and services to providers, being frequent acquisition targets.
The median acquisition price for search-fund-acquired companies also saw a decline, dropping to $10 million in 2018-2019 from previous years. This suggests a trend towards acquiring smaller companies, possibly due to a strategic focus on industries with high growth potential but lower initial valuation.
Conclusion
The 2020 Search Fund Study underscores the dynamic and evolving nature of search funds as an entrepreneurial path. The increasing number of funds launched, the diversity of searcher backgrounds, and the shifts in targeted industries all point to a vibrant and growing community. As search funds continue to gain traction, understanding these trends and insights will be crucial for aspiring search fund entrepreneurs and investors looking to navigate this promising landscape.
Search funds offer a unique opportunity for entrepreneurs to achieve significant ownership and leadership roles, while providing investors with attractive returns and mentoring opportunities. The continued growth and evolution of this model highlight its potential to shape the future of entrepreneurship and private equity investment.
