In 2023, a record number search funds were launched across the U.S. and Canada, according to a 2024 study by Stanford’s Graduate School of Business.
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Jason Jackson always wanted to be an entrepreneur, but he lacked the resources and ideas to start a business. So, when he discovered an investment vehicle called a search fund while studying for his MBA, he went all in.
As millions of baby boomers prepare to retire, a quiet crisis — and an unexpected business opportunity — is unfolding across the economy. Today, over half of all U.S. small businesses are owned by people aged 55 and over, yet most lack a succession plan, according to Gallup.
These businesses are often unglamorous, but essential to keep society running: plumbers, equipment rental companies and pest control.
“They’re the types of companies that if they drop what they do, it would really hurt,” said Jon Staenberg, founder & CEO of Agate Hound Fund.
Enter the next generation of entrepreneurs — millennials and Gen Zers — who are seizing this moment not by launching startups, but by buying companies through search funds. In doing so, they’re revitalizing Main Street businesses and solving a looming succession crisis, all while building wealth in a turbulent economy.
What is a search fund?
First conceived in 1984, search funds — also known as “entrepreneurship through acquisition” — let individuals — or “searchers” — raise money from a small group of investors to buy and operate a small or medium-sized private company.
A 2024 study by the Stanford Graduate School of Business describes the process in four steps:
- Stage one: Raise initial capital (about 2 to 6 months)
- Stage two: Search for and acquire company (about 12 to 24 months)
- Stage three: Operation and value creation (about 4 to 7+ years)
- Stage four: Exit (about 6 months)
The goal is to grow these businesses and exit with a profit — often to a private equity firm.
It’s a compelling model: lower risk than starting from scratch, since the business already has customers, revenue, and a product-market fit.
Acquisition targets are typically businesses with recurring revenue, low overhead, minimal regulatory risk, and stable customer bases.
“These are businesses that are, frankly, hard to break,” said Jackson, who is now a search fund investor. “It’s very forgiving for the first-time CEO.”
Besides “core” search funds, other variants include self-funded, single-investor models, while others prioritize a larger pool of capital committed at launch, or a longer holding period of between 10 and 20 years.
In 2023, a record 94 core search funds were launched across the U.S. and Canada, while international interest also set new milestones, with 59 new core funds outside North America, according to studies conducted by Stanford and IESE Business School.
‘Safe port in a storm’
Search funds have grown popular as traditional career paths feel less secure, with layoffs, automation and artificial intelligence reshaping industries.
“There is a big displacement of young professionals who are in the middle of their career,” said Aik Chuan Goh, managing partner of Singapore-based search fund Garlic Equity Capital. Many of these “ambitious young professionals no longer see corporate life as their future,” he added.
On the other hand, many business owners are looking to retire. “When you put one and one together, you have a great match,” said Goh.
We live in such a tumultuous time with change happening so fast, this feels like a very safe port in a storm.
Jon Staenberg
Founder and CEO, Agate Hound Fund
Investors are taking notice too. Amid downturns in the venture capital and private equity markets, search funds have emerged as an alternative asset class.
“Venture [capital] is so crowded now. Search funds still remain small, while the opportunity set is so big — it’s the only thing I want to do for the rest of my career. You look at the returns, they’ve been phenomenal. They’ve been outsized,” said Staenberg.
Stanford’s 2024 study of 681 search funds formed in the U.S. and Canada since 1984 found that their internal rate of return was 35.1%, with a 4.5 times return on investment.
“Over the last 40 years, the stock market has been somewhere [around] 8.5% annual returns … Then you go to private equity or venture over that same 40-year period … and the returns are somewhere around 13% to 14%. So [when] you start looking at the outsized returns of 35% for search, it’s a bit of a head scratcher,” said Staenberg.
“We live in such a tumultuous time with change happening so fast, this feels like a very safe port in a storm.”
Checkbook, phonebook, playbook
Meanwhile, search funds have also offered a risk–adjusted way for aspiring business owners to pursue their CEO dreams, such as Jackson, who, together with his friend Olaide Lawal, started their search fund in 2015.
About 18 months later, the duo raised more than $5 million and acquired three dental practices from a dentist who was in his 50s. Over the next six years, Jackson ran Unified Dental Care as CEO and grew the company to seven locations before selling the business to a strategic buyer in 2023.
But Jackson did not come from wealth. Growing up in Champaign, Illinois, he didn’t see many business success stories around him.
“It was normal for me to literally see in front of my door, gang fights [break] out … and so I did not have as much access to seeing entrepreneurs,” said Jackson.
“I saw the barber shop that was down the street, or I saw the person that owned the barbecue shop … [and] people that were making an honest living, but barely livable wages,” said Jackson.
So it was a risk adjusted path for me as a minority entrepreneur that didn’t come with a lot of resources to have … a successful exit.
Jason Jackson
Former CEO, Unified Dental Care
“For me, the idea [of a search fund] was fantastic, because … I didn’t have the startup idea, so it was an opportunity for me to buy an existing business,” he said.
What makes search funds unique, he said, is that his investors also become his mentors.
“What separates search fund investors is that they provide, principally, three things to the entrepreneur. The first thing that they provide is [a] checkbook… This is something that I didn’t have access to,” said Jackson.
“Second thing that they provide access to is a phone book, meaning call me or call my network anytime … and the third thing that they provide [is a] playbook, meaning, here’s how you execute once you buy this business,” Jackson added.
“So it was a risk–adjusted path for me as a minority entrepreneur that didn’t come with a lot of resources to have … a successful exit,” said Jackson.
The new American dream?
But running a search fund isn’t all smooth sailing. In fact, Jackson uncovered fraud two weeks into running the business: the seller had inflated revenue by millions.
“We thought we were buying a $7 million revenue company and $1.5 million in EBITDA,” said Jackson. “What we discovered was that the business was really doing $5 million in revenue and losing $500,000 a year after adjusting for the fraud.”
Despite the rocky start, Jackson turned the business around. He exited successfully, more than doubling his investment and earning seven figures altogether from his tenure as CEO and from the deal, according to documents reviewed by CNBC Make It.
“We eventually were able to sell the business at a decent multiple. It’s decent for the search fund industry. It’s really good compared to private equity, but it’s really great compared to where my partner and I came from. He came from Lagos, Nigeria. I came from an under-resourced community,” said Jackson.
Today, Jackson runs the Black Search Network, which he co-founded in 2020. He spends his time investing in and passing on the knowledge he’s gained through his own journey to other aspiring entrepreneurs and searchers.
It also allows people who are gritty, who are hungry, who are willing to be coached, to pursue what we used to call the American dream — to build a business into even more success and have an exit and then come back and help others do the same thing.
Jon Staenberg
Founder and CEO, Agate Hound Fund
Search funds are not a silver bullet. Besides dealing with rejection, searchers have to find a good business to buy, convincing the owner to entrust you with their life’s work, and of course, learning how to run a business for the first time.
But for a generation looking for stability and purpose, they may offer something rare in today’s economy: a practical, profitable, and supported route to owning a business.
“It truly is the life cycle of entrepreneurship,” said Staenberg. “It also allows people who are gritty, who are hungry, who are willing to be coached, to pursue what we used to call the American dream — to build a business into even more success and have an exit and then come back and help others do the same thing.”
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