By Siddharth Gandhi (Associate Director, Aeka Advisors India LLP), and Paras Jhunjhunwala (Assistant Manager, Aeka Advisors India LLP), under the guidance of Abhishek Goenka (Founding Partner, Aeka Advisors India LLP).
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The search fund model, pioneered at Stanford University in the mid-1980s, has emerged as a distinct investment strategy for acquiring and growing profitable small and medium-sized businesses. Rather than building a business from inception, investors back an entrepreneur (the Searcher) to identify, acquire and operate an existing business, an approach commonly referred to as entrepreneurship through acquisition (ETA).
Although the model is well established in the United States, Canada, Europe and Latin America, it is particularly well suited to India’s SME landscape. A large number of founder-led businesses are approaching succession events, while an increasing pool of entrepreneurial operators is seeking opportunities to acquire and scale established businesses rather than start new ventures. Search funds provide a mechanism to align these complementary interests by combining entrepreneurial leadership with long-term investor capital.
The model also offers a commercially attractive alternative to traditional pooled investment structures. Establishing an investment platform as an Alternative Investment Fund (AIF) under the SEBI (Alternative Investment Funds) Regulations, 2012 entails minimum corpus and investor thresholds, sponsor commitment requirements and ongoing regulatory obligations that are designed for diversified investment funds. Those features may be disproportionate where a relatively small group of investors intends to back a single entrepreneur in acquiring one operating business. Search funds instead rely on bespoke contractual arrangements that allow investors to fund the search and acquisition process without establishing the need of a regulated AIF.
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