Has anyone here thought about starting a searchfund?

I have been recently reading up on the search fund model, after giving it some thought it looks like an attractive venture.

Basically a search fund is a private equity fund raised with the purpose of funding the acquisition search, once the target is found the original investors have an optional first call on the investment.

Has anyone in this forum has ever thought of starting or has actually started a search fund. What are your thoughts on this?

Comments (4)

 
8/15/10

That's close, but not quite all of what a search fund does. Yes, the fund receives money to go "search" for a suitable acquisition target, but it is usually followed by the placement of the fund managers in executive-level roles at the target company. Thus, it can be thought of more as a roving band of executives, rather than a true PE fund.

What does exist though are fund-less PE shops. In my Junior year of undergrad, I interned at one of these places - they basically have a very committed set of LPs to whom they go each time they have a suitable target instead of raising a committed fund. In terms of firm economics, this model is beneficial since carry is paid on a per-deal basis (upon exit) instead of averaged over the life of the fund.

But hey, if you know anyone interested in funding either of these, let me know and I'd love to start one with you...

Learn More

9 LBO Modeling Tests, 10+ hours of PE Cases and 2,447+ interview insights across 203 private equity funds. The WSO Private Equity Interview Prep Course has everything you'll ever need to break into the competitive PE industry. Learn more.

 
9/1/10
sparticus:

...What does exist though are fund-less PE shops. In my Junior year of undergrad, I interned at one of these places - they basically have a very committed set of LPs to whom they go each time they have a suitable target instead of raising a committed fund. In terms of firm economics, this model is beneficial since carry is paid on a per-deal basis (upon exit) instead of averaged over the life of the fund...

This is sometimes referred to as a "pledge fund".

Regards

"The trouble with our liberal friends is not that they're ignorant, it's just that they know so much that isn't so."
- Ronald Reagan

 
8/31/10

The economics are attractive for the searchfunders. Typically structure I've seen is 15-20% equity in the target. 1/3 vests upon acquisition, 1/3 time vests and 1/3 performance based. Not to mention your salary which can range from $125-300k.

 
9/8/10

1-Click to Unlock All Comments - 100% FREE

Why do I need to be signed in?
WSO is a knowledge-sharing community that depends on everyone being able to pitch in when they know something.
+ Bonus: 6 Free Financial Modeling Lessons with 1-Click Signup ($199 value)