What is a “traditional” search fund?
In recent years, the search fund ecosystem has grown and diversified, both exciting trends. But as alternative models emerge, I’m seeing the original classifications become somewhat muddled. After a decade in this space, the search fund geek in me feels strongly that this confusion should be straightened out. Bear with me.
Recently in Australia and occasionally in Europe, I’ve seen the term traditional search fund used to differentiate between funded and self-funded searches. And I don’t know how to put this delicately, but that’s just not correct.
First of all, a self-funded search is not a search fund. More here.
But in order to understand the more relevant error, we must look back to 2015 when Search Fund Accelerator first appeared on the scene, and people began to differentiate between the accelerator model (There was only one accelerator model at the time.) and the traditional search fund. I’m pretty sure the term wasn’t used prior to 2015, but if you have evidence to the contrary, please let me know.
Fast forward to today, and we have various search fund models out of a number of accelerators, family offices, PE firms, and other organizations. These are distinct from the traditional search fund, in which an entrepreneur, with or without a partner, raises a search fund and follows the formula described in the Stanford study, operating outside the umbrella of the aforementioned organizations.
In other words, before accelerators came about, every entrepreneurship-through-acquisition venture was either a search fund or a self-funded search. Now we have self-funded searches, traditional search funds, and everything else.
To be honest, I’m not sure which category SMEVentures falls into, or if we even fall cleanly into any. We call ourselves a search fund platform – so slightly untraditional – but we do employ quite a traditional search fund model and structure to partner with each searcher. We raise search capital with the searcher, our search-phase investors have pro rata right of first refusal at the deal stage, and we and the searcher earn equity in the same way a traditional searcher does. In short, our structure today is all very middle-of-the-fairway search fund, but with a bunch of added experience and support.
For this reason, I still see each of the searches on our platform as a traditional search fund – run by a pair of partners, one of whom is SMEVentures.
