A search fund is an investment vehicle in which one or more entrepreneurs — the searchers — raise capital from a group of investors with a single goal: to find, acquire, and run an existing company. They're not looking to build a business from scratch or invest in a diversified portfolio. They're looking for one company they can buy and manage directly over the following years.
The model was born in American business schools in the 1980s and has grown strongly in Spain over the past decade. According to data on the Spanish lower mid-market, search funds are now one of the five most active buyer profiles in SME sale deals, alongside strategic buyers, private equity funds, family offices, and individual investors.
How a search fund works
The process is structured in two clearly distinct phases.
Phase one: the search. The searcher raises initial capital — relatively modest, usually between €300,000 and €600,000 — that allows them to work full-time on finding the right company. During this phase, which can last between 12 and 24 months, they analyze dozens or hundreds of companies, filter those that fit their investment profile, and hold conversations with owners. The search capital covers their salary, travel, legal advice, and the operating costs of the process.
Phase two: the acquisition. Once the searcher identifies the target company and negotiates the terms, they go back to their investors to raise the capital needed for the purchase. Investors who took part in the search phase usually have a right of first refusal to co-invest in the acquisition, although new investors can also join in this round. Financing for the purchase is typically completed with bank debt and, in some cases, seller financing.
Once the acquisition closes, the searcher becomes the company's CEO and runs it over a typical horizon of five to seven years, with the goal of growing it, professionalizing it, and eventually selling it to generate a return for their investors.
What kind of company a search fund looks for
Search funds don't look for just any company. They have a fairly well-defined investment profile that follows the logic of their model: they're going to buy a single company and run it, so they need it to be manageable by one person with a generalist executive profile.
The most common criteria are revenue between €1 million and €10 million, a healthy EBITDA margin (usually above 15%–20%), revenue with a recurring component (maintenance contracts, subscriptions, ongoing services), low dependence on the founder for day-to-day operations, a fragmented market with consolidation potential, and a reasonably diversified customer base.
The sectors where search funds are most active in Spain are recurring B2B services, industrial maintenance, professional services, applied technology, education and training, and specialized distribution. These are sectors with predictable dynamics, moderate barriers to entry, and where a professional management team can deliver significant operational improvements.
How it differs from a private equity fund
Although both buy companies, the way they operate is very different.
A PE fund manages capital committed by limited partners, buys several companies in parallel, and puts professional managers in charge of each one. The searcher, by contrast, buys a single company and runs it themselves. They're both buyer and CEO.
That has direct implications for the seller. A search fund usually offers more conservative multiples — around 4x to 5x EBITDA according to Deale data, compared with the 5x–6x that a PE fund or a strategic buyer with synergies can reach. The reason is that the searcher finances the purchase with a mix of equity and debt, and needs the business's cash flow to comfortably cover the debt service. If you want to understand how EBITDA multiples by buyer type are built, we've published a detailed analysis.
In return, a search fund can offer something other buyers don't always provide: continuity and full dedication to the business. The searcher will be at the company every day, get to know the team, maintain relationships with customers and suppliers, and grow the company with a very hands-on operational approach. For a seller who values the continuity of their business and their team, that profile can be more attractive than a fund that brings in an outside manager and operates from a distance.
What it means for the seller when the buyer is a search fund
If you're selling your company and the buyer is a search fund, there are several things worth keeping in mind.
The process may take longer. The searcher needs to raise the acquisition capital after agreeing on terms with you, which can add weeks to closing. It's reasonable to ask for evidence that they have committed investors before granting exclusivity.
The payment structure may include seller financing. It's common for a search fund to ask the seller to finance part of the price — a vendor loan or an earn-out tied to targets. This isn't necessarily negative (it can maximize the total price), but the terms need to be negotiated carefully.
The searcher will be involved in the transition. Unlike a fund that delegates to a professional CEO, the searcher will be there from day one. That makes the transition easier if there's founder dependency, but it also requires a handover period in which the seller transfers knowledge, relationships, and context.
Due diligence will be rigorous. The searcher is staking their professional career on this acquisition — it's not just one more in a portfolio. That means due diligence will be thorough and the searcher will want to understand the business in detail before closing.
An increasingly relevant profile in the Spanish market
The search fund has gone from a niche, academic model to one of the most active buyers in the Spanish lower mid-market. The combination of a business landscape with thousands of SMEs facing generational succession, a fragmented market with consolidation opportunities, and a growing generation of professionals trained in M&A and business management has created a very favorable environment for this model.
For business owners considering a sale, understanding what a search fund is and how it operates helps them better evaluate the offers they receive and decide whether the searcher's profile fits what they want for their company's future. For a complete overview of all active buyer profiles in Spain, we've published a guide to the types of investors in M&A.
