Search funds in Germany. How the model works and who it is for.
What is a search fund, how does it work and what are the alternatives for founders who want to take over a company? A simple overview.
A search fund is one way to take over an existing company. Investors first finance the search, and then the purchase. The people searching, called searchers, then lead the company as its management and get a share of the success. Search funds are the best known model of Entrepreneurship Through Acquisition and are gaining importance in Europe (WHU).
The key points in brief.
- Investors finance the search and later the purchase.
- The searchers lead the company and get a share of its success.
- The model is mainly suited to larger companies and people with a management or finance background.
- There are alternatives where you keep more of the shares.
How a traditional search fund works.
- Fundraising for the search: The searchers raise money from a group of investors. This finances their search, covering salary and expenses for a set period.
- Search: They systematically review many companies, usually solid, profitable German Mittelstand (small and mid-sized companies) with an open succession.
- Purchase: Once the right company is found, the investors finance the purchase, usually together with bank loans.
- Leadership: The searchers take over the management and continue to develop the company.
- Exit: After a few years, the investors often sell their shares, and sometimes the searchers do too.
The variations.
Traditional search fund: Investors finance the search and purchase. In return, they hold the majority of the shares.
Self-funded search: You finance the search yourself. You buy the company with a bank loan, grants and possibly a few angel investors. In return, you keep a much larger share.
Programmes and accelerators: You get prepared, matched with suitable businesses, and receive support with financing and the handover. How many shares you give up depends on the model.
Pros and cons.
- Income during the search. Traditional search fund: yes. Self-funded: no, your own funds.
- Support from investors. Traditional search fund: strong. Self-funded: little.
- Your shares in the end. Traditional search fund: smaller. Self-funded: larger.
- Typical company size. Traditional search fund: tends to be larger. Self-funded: tends to be smaller.
- Your own risk. Traditional search fund: lower. Self-funded: higher.
Search funds in Germany.
The scene is growing in German-speaking countries. There are specialised investors, research and specific university initiatives. For example, WHU founded the ETA Academy with the investor evolutiq, and evolutiq says it supports over 45 search funds in Europe (WHU). The Search Fund Primer from the Stanford Graduate School of Business and the studies from IESE Business School are considered standard reading for beginners.
Which path is right for you.
A search fund is for you if you have a strong management or finance background, want to lead a larger company, and are willing to give up shares in exchange for capital and backing.
A self-funded search is for you if you already have capital, or access to it, and want to keep as much ownership as possible.
A programme is for you if you have already founded or managed a company but want support with the search, valuation, financing and handover, and are looking at small to medium-sized businesses. This is exactly what the Nachfounder programme is for.
FAQ
Frequently asked questions
What is a search fund?
A model where investors finance one or two people to search for, buy, and then run a suitable company themselves.
How is a search fund different from a normal acquisition?
With a search fund, investors finance the search and later the purchase, and hold a large portion of the shares in return. With a self-funded acquisition, you bear the costs of the search and purchase yourself, usually with a bank loan and grants, and you get to keep more of the shares.
Who is a search fund suitable for?
Mainly for people with a strong background in management or finance who want to take over larger companies and are willing to give up shares in exchange for capital and support.
Are there alternatives to a search fund?
Yes. There is the self-funded purchase, the management buy-in, and programmes that prepare founders and match them with businesses, without investors taking the majority of the shares.
