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1/ When did you start investing in search funds and launch KYR Capital? What motivated you to take this approach, and how has your journey been so far?
We started investing in search funds about five years ago, first through the family office Karaíba and later with KYR Capital, the first exclusively dedicated search fund investment platform in Brazil. The decision to focus on this asset class was driven by its compelling risk-return profile, the structural inefficiencies in the SME market, and the opportunity to back talented entrepreneurs building long-term, high-quality businesses. Since then, we’ve interviewed over 150 entrepreneurs, backed 20% of them, and invested in eight companies—six in Brazil and two abroad. While we haven’t seen exits yet, the outlook is very positive.
2/ You’re planning to launch a second fund. What is the target size, and what changes or improvements are you aiming to implement? Are you planning to expand beyond Brazil into the broader Latin American market or even other regions? What value do you bring to the CEOs you back?
It’s still early to define specifics, as we haven’t exited any businesses yet. However, given the strong performance of our portfolio and continued investor interest, we anticipate that both our family office and current LPs will want to maintain exposure to the asset class. If that holds, we’ll likely start raising a ~$25M fund in Q2 2025, with an 80/20 focus on Brazil and the broader Latam market.
As part of our investment philosophy, we take an active governance role by serving on the board of every company we invest in, ensuring that, beyond capital, our CEOs have the support and strategic guidance needed to succeed. Our focus is on building high-quality, resilient businesses that deliver strong returns for all stakeholders.
3/ Brazil has become one of the most important search fund markets globally. Could you share some key figures that illustrate the growth of this market? In your view, what are the main factors driving this growth, and what challenges do local searchers face?
The model has gained significant traction in Brazil, with 60 entrepreneurs launching search funds since 2016, nearly half of them in 2024 alone, and 20 acquisitions completed. Simply remarkable!
The number of search funds has grown 5x in the last five years, and returns have been outstanding, with 40% CAGR in capital gains (unrealized), significantly outperforming traditional asset classes, such as private equity, venture capital, real estate, infrastructure, and fund of funds. Acquired companies have demonstrated 30-36% annual revenue and EBITDA growth, reinforcing the model’s ability to drive value. That said, challenges remain—particularly around higher interest rates (limiting leverage), deal sourcing in an increasingly competitive environment, and the need for stronger exit pathways and cases.
4/ A few weeks ago, Spectra organized the 1st Latam Search Fund Conference. What were the key takeaways from this event, and how would you explain the growing popularity of the search fund model in Latin America?
The conference highlighted how search funds have emerged as a top-performing investment strategy in Latin America, attracting more entrepreneurs and capital than ever before. The number of active searchers has grown dramatically, and the fundraising failure rate has dropped from 26% (2019-2022) to just 5% (2023-2024), showing increased investor confidence. The high-quality SMEs available for acquisition, strong post-acquisition financial performance, and maturing ecosystem have contributed to this growth. As more institutional investors recognize the scalability and resilience of the model, Latin America is becoming a key region for search funds globally. Specifically, Brazil enjoys a privileged position, being the Latin American country with the largest investment ecosystem specialized in search funds and one of the most relevant globally, following the U.S./Canada, and Spain.
5/ Despite the growing number of active searchers in the market looking for companies to acquire, 2024 hasn’t been a particularly strong year in terms of new investments in Latam. Do you think there are too many players chasing too few good opportunities? Or are investors becoming more selective, which might explain the slower pace of deal closures?
We saw many deals in 2024, but most didn’t make it to the finish line—something not unusual in search fund investing. We don’t see this as a sign of an overcrowded market or investors becoming more selective but rather as part of the natural process of closing high-quality deals. Many factors can delay or prevent transactions, from valuation misalignment to due diligence complexities. That said, the fundamentals remain strong, and we expect well-structured deals with capable searchers to continue getting funded.
6/ The Latam market has distinct characteristics compared to the U.S. or Europe, such as higher interest rates that limit the use of leverage. How do these factors shape your investment strategy? What are your main criteria when evaluating potential companies to invest in?
The higher cost of capital in Latam, particularly elevated interest rates (senior debt at interest rates between 15% and 20%), limits the use of leverage, making cash flow resilience and strong margins even more critical in our investment process. This environment reinforces the need for a strong margin of safety in every deal we pursue—we prioritize companies with robust fundamentals, recurring revenue, pricing power, and operational efficiencies that allow them to withstand economic volatility and financial constraints. We also focus on businesses in fragmented industries with competitive moats and succession-driven opportunities, where searchers can drive significant operational improvements.
7/ Liquidity and exits remain significant challenges in Latam. What strategies or timelines do you foresee for achieving successful divestments in the region?
At KYR Capital, we are patient capital and firmly believe that a long-term view and hold strategy pays off. Rather than rushing exits, we focus on building fundamentally strong businesses that naturally attract strategic buyers and financial sponsors over time. Exits in Brazil and emerging markets tend to be cyclical, with investor sentiment fluctuating based on macroeconomic conditions. We’ve seen that foreign capital often flows in aggressively during bull markets but pulls back in downturns, creating liquidity challenges. This cyclicality reinforces our focus on high-quality businesses with strong governance and scalable operations, making them resilient across cycles. Most exits will likely come from PE funds, industry roll-ups, or strategic buyers, with select IPO opportunities. By maintaining a disciplined, long-term approach, we ensure that when the right exit opportunity arises, both investors and entrepreneurs are well-positioned to maximize returns.
8/Looking ahead, where do you see the search fund ecosystem in Latam heading over the next 5 years, and what role do you envision KYR Capital playing in its evolution?
The next five years will be pivotal for search funds in Latam. We expect more entrepreneurs entering the space, a maturing investor base, and a meaningful wave of exits, which will further validate the model’s long-term viability. KYR Capital aims to be at the forefront of this evolution, backing top-tier searchers, fostering collaboration across the ecosystem, and driving best practices in post-acquisition execution. This is still just the beginning, and we’re excited to shape the next chapter of search funds in Latin America.
