Edward Silva always dreamed of being a top executive. He decided to pursue his passion by enrolling at the Stanford Graduate School of Business in 2018, with the aim of starting his own company. However, a classmate introduced him to the idea of buying and running a company instead of starting one from scratch. This led Mr. Silva to explore the concept of raising a search fund, a pool of money from investors who believe in the potential of ambitious young entrepreneurs.
After successfully raising over $30 million for his search fund, Mr. Silva purchased MásLabor, a consulting firm in Virginia that specializes in employment visas, in July 2021. The company, owned by a couple in their 70s with no children, was the perfect acquisition target. Search funds, initially an experimental idea in business schools, have gained popularity in recent years. Investments in search funds amounted to nearly $800 million across 2020 and 2021, marking a significant increase in interest and funding.
Search fund courses are now offered in various M.B.A. programs, with Stanford at the forefront of promoting and tracking the industry’s growth. The strategy typically involves entrepreneurs raising initial funding to cover their expenses while searching for a suitable company to purchase. Investors see high potential returns in search funds, with an average internal rate of return of 35 percent compared to 15 percent for private equity funds.
Successful acquisitions focus on profitable companies in fragmented industries, where owners are approaching retirement without heirs. This model has proven to be an attractive investment opportunity for both individual and big investors, including private equity firms. Entrepreneurs like Mr. Silva and Kelsey Holland, a recent Harvard Business School graduate, have chosen the search fund route to achieve their dreams of becoming company executives.
Ms. Holland, who raised about half a million dollars for her search fund, is currently searching for a health care company to acquire. Despite growing competition in the market, she remains confident in her ability to find the right opportunity. The search fund model offers a unique path for entrepreneurial M.B.A.s to quickly raise substantial funding and acquire established businesses, showcasing their leadership skills and business acumen.
