Mainshares, in collaboration with Search Fund Ventures, has released the Self-Funded Search Investing Report, a comprehensive guide on the self-funded search asset class, providing invaluable insights into the model, key market trends, investment opportunities, and more.
Why self-funded search matters
With $14.2 trillion in small business assets transitioning from Baby Boomers and Gen X, the self-funded search model enables ambitious operators to acquire established, cash-flowing businesses. It offers investors a chance to support small business growth while achieving strong returns. This growing model leverages SBA 7(a) loans and rising investor interest, proving resilient despite economic shifts.
How the report is designed:
1. Overview of the self-funded search asset class: Explains the model, targeted business profiles, and value-creation strategies like growth, operations, and tech.
2. How self-funded search deals are structured: Outlines deal steps: sourcing, due diligence, closing, and key materials for investors.
3. Key terms and concepts investors and operators should know: Covers deal structures, financing (e.g., SBA loans), market trends, risks, and opportunities.
Key highlights from the report
- Market Overview and Growth:
- The self-funded search model has seen substantial traction, fueled by SBA 7(a) loan programs that allow up to 90% loan-to-value (LTV).
- This space reflects a compelling investment alternative to venture capital, which has experienced large swings in annual deal volume, while small business acquisitions remained steady at $38 billion in deal volume in 2024.
- Investment Returns:
- Historically, self-funded searches have offered impressive returns, with ~30% average IRRs—on par with traditional search funds.
- Investors benefit from equity “step-ups,” where they gain a larger share of the company’s equity as a multiple of their contributed capital (ie, “2x step-up).
- Acquisition Targets:
- Most targets have enterprise values between $4M and $12M and EBITDA ranges between $1M and $4M, providing a sweet spot for small-scale acquisitions.
- Top industries include home services, B2B services, and manufacturing, with value-creation strategies centered on operational improvements and growth.
- Investor Terms:
- Preferred dividends range from 10% to 12%, offering attractive cash flow potential.
- Investors typically account for 10%–30% of total capital, while searchers contribute less than 2% of equity.
Keeping small businesses in local communities
Self-funded search supports small business legacies and benefits communities by:
- Facilitating the transition from retiring owners to skilled operators.
- Boosting community impact, with small businesses donating 250% more to local causes and reinvesting 48% of revenue locally (vs. 13% by major chains).
- Driving 70% more local economic activity per square foot compared to big-box retailers.
Empowering your investment decisions
The Self-Funded Search Investing Report is filled with data, actionable insights, and expert analysis to help you:
- Understand key trends in the self-funded search ecosystem.
- Evaluate operators effectively.
- Build a robust investment strategy within this growing asset class.
Whether you’re a seasoned investor or exploring self-funded search for the first time, this report is your go-to resource for making informed decisions in the small business acquisition landscape.
Download the full report here:
https://mainshares.com/learn/announcing-the-self-funded-search-investing-report
