Search fund or your own takeover? Why small businesses fly under the radar

Anyone looking into business succession sooner or later comes across the term search fund. It is a model from the US: one or two people raise money from investors, use it to find a healthy company, buy it and then run it themselves. The idea dates back to 1984 and reached Germany in 2009.

For owners without a successor that sounds appealing. For founders and managers who want to take over, too. A general introduction is in our article Search funds in Germany. This one is about the figures: what the two major studies from Stanford and IESE show and why the model is not really designed for most smaller businesses in Germany.

How a search fund works

A classic search fund has four phases. First, investors fund the search, meaning the searchers' salary and costs, usually for one to two years. The searchers then talk to many owners and assess businesses. Once they find the right company, the same investors provide the money for the purchase, topped up with bank debt. The searcher then becomes managing director and holds a stake that grows with success. After a few years the company is usually sold on.

IESE Business School describes search funds as an acquisition vehicle run by one or two people working with a small group of investors. 71 percent of searchers outside the US and Canada hold an MBA (IESE press release, 29 Oct 2024).

What the studies show

Stanford has studied search funds in the US and Canada since 1996, IESE all other countries since 2011. The latest editions are from 2024, with data up to the end of 2023.

Returns are high: Stanford reports an internal rate of return of 35.1 percent across all funds and 4.5 times the capital invested (Stanford GSB, 2024 Search Fund Study). That is an average. Some searchers never find a company, and a few very successful acquisitions pull the figure up.

In Germany the model is still small. According to IESE data, around 20 search funds have been set up here since 2009, ten of which have bought a company, most of them in 2022 and 2023 (cited by Moonbase Capital, May 2025). For comparison, KfW expects 545,000 German SMEs to look for a successor by the end of 2029.

Which businesses search funds look for

A search fund needs a company large enough to deliver a high return to investors, pay a managing director and service debt. The median purchase price in the Stanford study was 14.4 million US dollars. That is many times what most owners in Germany expect: KfW reports an average asking price of €499,000.

The conclusion is simple. Most businesses with 5 to 100 employees fly under the radar of search funds. Not because they are weak, but because they are too small for the model. A fund with several investors, a search salary and a return target hardly works at a purchase price of half a million euros.

Search fund and Nachfounder compared

What this means for owners

If your business is smaller, do not wait for investors to knock. The more realistic successors are people who want to found a company without starting from zero and who finance the purchase with a bank and development funding. The business valuation calculator shows roughly what your business is worth. How preparation works is explained on the page for owners.

What this means for successors

A search fund is a way to take over a larger company with other people's money. In return you share ownership and decisions with investors. The other path is smaller, but yours: a business you buy with your own capital and loans and run for as long as you like. Why that is the better start-up for many people is covered in Buying a company instead of founding one. If you want support along the way: apply for the programme.