Our Investment Approach
Learn how we Pick the Best Search Fund Investments
We Support Great Leaders Building Enduring Companies.
At Search Fund Ventures, our investment criteria are meticulously designed to identify and support high-potential small businesses that align with our strategic vision. Our criteria are built around key characteristics that we believe are essential for sustainable growth, profitability, and value creation. Here, we outline the core components of our investment criteria that guide our decision-making process and ensure the success of our portfolio companies.
Target Searcher Profile
The success of any investment hinges on the capabilities and experience of the individuals leading the company. At Search Fund Ventures, we prioritize partnering with searchers who possess one or more of the following backgrounds:
P&L Leadership Experience: Proven track record of profit and loss management at Fortune 500 or private equity-backed companies.
Entrepreneurial Experience: Demonstrated entrepreneurial skills and success in starting and growing businesses.
Sales and Operations Expertise: Strong background in sales operations and management, ensuring effective business execution.
Investing Background: Solid experience in investing, providing a deep understanding of value creation and financial acumen.
Types of Searches
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Self-Funded Searches
Entrepreneurs who finance their own search process, demonstrating strong personal commitment and confidence in their investment thesis.
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Independent Sponsors
Experienced individuals or teams who raise capital on a deal-by-deal basis, bringing flexibility and tailored expertise to each investment opportunity.
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Traditional Search with an Equity Gap
We will consider investing in traditional searchers that need additional equity to close a live deal, but will not invest in a funded search
Financial Metrics
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Margin
Attractive gross margins and EBITDA margin.
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Revenue Growth
Consistent historical revenue growth, demonstrating market demand and business scalability.
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Free Cash Flow
Strong free cash flow, ensuring the company's ability to reinvest in growth and return capital to investors.
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Return of Capital
Targeting a return of capital within three to four years to mitigate risk and enhance investment returns.
Industry Focus
While Search Fund Ventures maintains an industry-agnostic approach, we are strategic in our sector selection. We focus on industries where we can leverage our expertise and avoid sectors with inherent risks. Our industry criteria include:
Preferred Sectors
B2B and B2C services, value-add distribution, contract manufacturing, specialty manufacturing, software, and e-commerce.
Avoided Sectors
Retail, hospitality, entertainment, highly cyclical industries like metals and mining, oil and gas, deep tech, and sectors reliant on discretionary spending such as gyms and non-critical products/services.
Deal Terms
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Average Check Size
Investments ranging from $100k to $350k per portfolio company.
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Financial Leverage
Aiming for 35%+ leverage to enhance equity returns.
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Equity Step-Up
Seeking preferred equity step-up of 2x+ if full benefit of leverage is not shared with investors.
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Preferred Dividend
Targeting a 7%+ dividend, preferably in cash, to ensure steady returns.
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Liquidation Preference
At least a 1.0x liquidation preference upon a liquidity event, prior to distributions to common equity.
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Management Incentives
Alignment of management incentives with investor goals through performance-based compensation and long-term incentive plans.
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Governance
Ensuring robust governance structures, including investor rights and board representation, to protect shareholders and foster accountability.
Next Steps
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Schedule a Call
Schedule a call with one of our general partners to get answers to all of your burning questions about Search Fund Investing.
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Managed Fund
Our fund provides broad exposure to the asset class, allowing you to invest in a diverse portfolio of compainies with a single investment
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Book a 1:1 Informational Session
Book a call with one of our general partners. We are happy to answer any questions you have about how search funds can fit into your well-balanced investment portfolio.