What's Happening?
A growing number of young entrepreneurs in the U.S. are turning to search funds as a means to acquire small businesses, particularly as many baby boomers prepare to retire without succession plans. Search funds, first conceived in 1984, allow individuals to raise capital from investors to purchase and operate small or medium-sized private companies. This model is gaining traction as it offers a lower-risk alternative to starting a business from scratch, given that these businesses already have established customer bases and revenue streams. In 2023, a record number of search funds were launched in the U.S. and Canada, highlighting the increasing interest in this investment tool. Entrepreneurs like Jason Jackson have successfully used search funds to acquire businesses, grow them, and eventually exit with a profit.
Why It's Important?
The rise of search funds is significant as it addresses the looming succession crisis in the U.S. economy, where many small businesses owned by baby boomers lack a clear plan for future leadership. This trend not only revitalizes essential Main Street businesses but also provides a pathway for young professionals to achieve entrepreneurial success in a turbulent economy. Search funds offer a 'safe port in a storm' for those disillusioned with traditional corporate careers, providing a structured approach to business ownership and wealth creation. The model's success is reflected in its impressive returns, with search funds showing a 35.1% internal rate of return, far surpassing traditional stock market and private equity returns.
What's Next?
As search funds continue to gain popularity, more young entrepreneurs are expected to explore this avenue for business acquisition. The model's success may attract increased interest from investors seeking alternative asset classes amid downturns in venture capital and private equity markets. Additionally, the growing network of search fund investors and mentors could further support aspiring entrepreneurs, particularly those from underrepresented communities, in achieving successful business exits and contributing to economic growth.
Beyond the Headlines
Search funds not only provide financial opportunities but also foster mentorship and community support for entrepreneurs. This model allows individuals from diverse backgrounds to access resources and guidance, potentially reshaping the narrative of the American dream by enabling success through acquisition rather than traditional startup paths. The ethical dimension of supporting retiring business owners and preserving essential services also adds a layer of societal benefit to the search fund model.
