Search Funds: A Financing Option for Business Buyers Search funds seek out opportunities to acquire.
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When Jim Southern wanted to buy a company in the 1980s, he didn't use his savings or look for loans. Instead, he sought investors for a search fund--a pool of money that helps aspiring entrepreneurs find viable businesses to acquire. Southern ultimately purchased a printing company that he held for approximately 10 years before selling it.
Today, Southern is founder of Pacific Lake Partners, a San Francisco firm that helps entrepreneurs acquire businesses using a two-stage search-fund model: providing money for the search, then assisting with the acquisition. Pacific Lake typically works with recent business school graduates, making available, along with other investors, up to $500,000 to help them find the right opportunity. Once a business is located--usually one in the $10 million to $30 million range--the firm will provide up to $2 million for the purchase.
"The typical search-fund entrepreneur has chosen his investors well," Southern says. "He doesn't have the money himself, but he does have a stable of investors who have been communicating with him for up to two years during the search."