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At the end of 2021, according to data provided by Stanford GSB’s Center for Entrepreneurial Studies (CES) and IESE International Search Fund Center, there were approximately 526 SFs in the USA/Canada region and an additional 211 in the rest of the world, totaling around 737 SFs established worldwide. It’s worth noting that these studies focused solely on first-time traditional SFs, excluding self-funded searches (common in Anglo-Saxon countries), second-time search funds, and single-sponsor searches, as these involve different skill sets, capital requirements, and external factors. Likewise, the studies overlooked derivative models such as accelerators, entrepreneurs in residence, and other hybrids, which play significant roles in the global landscape. For instance, in countries like the USA, Germany, Poland, Japan, and Australia, these models account for a significative part of all acquisitions.
Considering recent trends, it’s reasonable to estimate that in the USA/Canada region alone, around 120 new SFs have been established in the past two years, bringing the total to at least 650 SFs. As for the rest of the world, given that over 20 SFs have pioneered in “virgin countries” in the past two years and the notable development in matured countries like Spain, Mexico, Brazil, France, Italy, and the UK for instance, it’s evident that more than 150 new SFs have been established in the past two years, totaling at least 350 SFs since inception. This surpasses the significant milestone of 1,000 SFs worldwide.
Here are some key points to explain the evolution of the SF market:
- There has been a notable increase in interest from both entrepreneurs and investors in the SF model. This is partly due to the success stories of SF entrepreneurs who have acquired, grown, and exited businesses successfully (with a historical average annual return of 35.3% based on 526 Search Funds launched in the US from 1984).
- The investor base for SFs has expanded beyond traditional sources such as wealthy individuals and family offices. Institutional investors are beginning to emerge everywhere, contributing to the industry’s growth.
- While the SF model originated primarily in the USA, it has gained traction in other parts of the world as well. SFs are now being launched across Europe, Asia, and Latin America, reflecting a global interest in the model.
- Many Business Schools worldwide are now incorporating specific courses about the SF model into their MBA programs.
- Advancements in technology, particularly AI, have enabled SF entrepreneurs to streamline deal sourcing, due diligence, and operational management processes. Tools such as data analytics, CRM software, and online marketplaces have enhanced efficiency and effectiveness in executing search fund strategies.
- While the traditional exit strategy for SF entrepreneurs is to sell the acquired business within a certain timeframe, there is growing diversity in exit options. Some entrepreneurs opt for longer-term ownership and growth strategies, while others pursue strategic partnerships, mergers, or public listings. Additionally, there is anticipation of “secondaries” in the SF segment in the coming years.
As the model gains popularity, competition among searchers to identify and acquire attractive businesses has intensified. This competition may lead to higher valuations for target companies and a greater emphasis on differentiation and value creation in the future.
Overall, the SF market will continue to evolve as entrepreneurs and investors innovate and adapt to changing market dynamics and opportunities. It is expected to double in size over the next 3-4 years, considering the potential growth in countries like China (and Asia in general) and India, which are still in the early stages of adopting the SF model.
