Before diving deeper into the differences, let’s set out the different stakeholders involved in the two asset classes.

The stakeholders

Search Funds operate around two key stakeholders: 

• The searcher is an individual, often with a background in business, who decides they want to own and manage a company rather than start one from scratch. However, buying a business requires money and expertise, which the entrepreneur may not have on their own. 

• Investors are the friends, family, local investors, and institutional investors dedicated to Search Fund investing, such as Innesto Partners, who will back the searcher during their search for a company and during the acquisition of the selected company. 

Whereas Private Equity involves the following two key stakeholders: 

• General Partner (GP) is the Private Equity firm itself, which is responsible for managing the fund and making high-level decisions regarding portfolio companies.

• Limited Partners (LPs) are the investors who contribute capital to the fund.

1. Primary objective 

A Search Fund is an investment vehicle that enables one or two entrepreneurs to search for, acquire, and operate one private, profitable small-to-medium sized business (SME). Such an entrepreneur is called a ‘searcher’. The goal is often to grow the business and achieve personal ownership. Whereas, Private Equity targets acquiring multiple businesses, focusing on achieving high returns through leverage buyouts, operational efficiencies and strategic exits.  

2. Size and type of businesses  

Search Funds target smaller businesses with revenues typically between €5–50 million and EBITDA of €1–5 million and various other typical criteria. For instance, these targeted SMEs have minimum 15% EBITDA margins, strong quality of revenue (contractually recurring) and are part of a fragmented market. Sellers of these SMEs have clear selling motivations, usually retirement and a lack of successors. Private Equity, however, targets larger companies or portfolio, often with EBITDA of €10 million and above. The targeted businesses are more mature businesses, frequently backed by significant leverage (i.e. debt). 

3. Investment model

Search Funds raise capital in two stages: 

• Search Capital: is the capital required by the searcher to cover operational expenses (e.g., salary, travel expenses, set-up costs, intern salaries, office space, due diligence costs, etc.) required to complete the search period up to 24 months.

• Acquisition Capital: is the capital required at acquisition. Investors can roll in their invested Search Capital into the Acquisition Capital plus a 50% step-up.

Private Equity operates through pre-established funds. LPs commit capital upfront, which the PE firm deploys across multiple acquisitions over time. Part of this committed capital will be management fees to cover operating expenses. 

4. Stakeholder roles

In the Search Fund model, the searcher plays a central role, taking charge of the entire process—from sourcing potential businesses to acquiring one and then running the company post-acquisition as a CEO and will overview all day-to-day operations. This individual is typically an aspiring entrepreneur, often with an MBA, who is looking to buy and build a successful company with the backing of experienced investors. Investors in a Search Fund not only provide the necessary capital but also offer invaluable mentorship and strategic guidance, supporting the searcher through every stage of the journey to ensure the business thrives. Ultimately, if all goes well, the searcher ends up being one of the largest shareholders, if not the largest. 

In contrast, Private Equity operates under a different structure. The General Partner is responsible for managing the fund and making high-level decisions regarding portfolio companies. Meanwhile, Limited Partners typically take a backseat approach when it comes to daily management, leaving the GP (and selected management) to handle the operational and strategic aspects of the investments. PE firms often appoint external management teams or leverage existing leadership. They focus on governance and strategic oversight rather than direct management. The LPs, while less involved, benefit from the expertise and direction provided by the GP, aiming for strong returns on their invested capital.

5. Timeline

Search Funds typically follow a long-term investment horizon of 7 to 10 years for a searcher, focusing on growth before ultimately exiting through a sale to a Private Equity fund, a strategic buyer, a management buy-out or even an initial public offering. This timeline encompasses several key phases: fundraising and setup, a 24-month search, acquisition, ownership and management, and finally, the sale and post-sale transition or earn-out. In contrast, Private Equity firms operate on shorter timelines, typically exiting within 3 to 7 years through sales, IPOs, or other liquidity events.

6. Deal Sourcing

Search Funds rely on independent searchers to identify and negotiate deals with owner-operated businesses, emphasizing relationships and personalized outreach. In contrast, Private Equity firms employ professional deal teams that typically source opportunities through intermediaries such as investment banks or brokers.