Search fund guide
A search fund is an investment vehicle in which an entrepreneur (the searcher) raises capital from investors to find, acquire and personally run an established company for 5-7 years. Spain is Europe's leading market by number of transactions. This guide covers the full model: types of search fund, the ideal target company, deal structure, financing, sourcing, valuation, negotiation, the first 100 days and a glossary of 50+ M&A terms.
Last updated: 5 July 2026
The model
A search fund is a model of entrepreneurship through acquisition. An entrepreneur — the searcher — raises capital from a group of investors to fund an 18-24 month search, acquires a single established company and personally runs it as CEO for 5-7 years, until a liquidity event returns the capital with a profit to investors and searcher.
For the selling owner, the difference versus other buyers is the personal commitment: you are not selling to a fund with a portfolio of companies, but to a specific person who will stake their career on the business. That is why search funds prioritise team continuity, an orderly transition with the founder and long-term growth.
Types
There are different structures for entrepreneurship through acquisition. Each model fits a different entrepreneur profile and resource base.
Stanford model
Multiple investors fund the search phase (€300K-€500K). The searcher receives 20-30% of the equity after the acquisition.
Lower personal risk
Broad mentor network
Proven model
More dilution
More formal process
Dependence on investors
Own capital
The entrepreneur funds the search with their own resources. More control and more equity upside.
More control
No dilution during the search
Full flexibility
Higher personal risk
Limited resources
No support network
One investor
A single institutional investor or family office funds the entire operation.
Fast decisions
Direct relationship
Flexible terms
Dependence on one investor
Less networking
Less diversification
| Aspect | Traditional | Self-funded | Single-sponsor |
|---|---|---|---|
| Search capital | €300K-€500K | Own | Variable |
| Searcher equity | 20-30% | 50-100% | 25-40% |
| Number of investors | 10-20 | 0 | 1 |
| Search duration | 18-24 months | Variable | 12-18 months |
| Support network | Broad | Limited | Moderate |
The target company
Search funds look for companies with specific characteristics that allow a smooth transition and long-term value creation.
The sweet spot that allows financing and hands-on management.
No excessive dependence on a single customer (<20% of sales).
B2B models with stable, predictable contracts.
Businesses that do not require heavy asset investment.
Competitive advantages that are hard to replicate.
Potential for growth and for professionalising management.
Fit test
Six quick questions to find out whether your company fits the profile searchers look for. No contact details required, immediate result.
The deal, step by step
The acquisition process follows a standardised structure that protects both buyer and seller.
A non-binding document that sets out the main terms of the offer.
Tip: The LOI should be detailed enough to align expectations, but flexible enough to adapt during due diligence.
A more detailed document than the LOI, common in more complex transactions.
Tip: HoTs are usually negotiated between lawyers and can take several rounds of review.
An exhaustive analysis of the target company across multiple dimensions.
Tip: A typical due diligence takes 4-8 weeks and can lead to price adjustments or additional conditions.
The definitive legal document that formalises the transaction.
Tip: The SPA is a complex document that requires legal counsel specialised in M&A.
Financing
Search fund acquisitions combine several sources of financing to optimise returns and spread risk. A typical capital structure:
Equity
Senior debt
Vendor note
Earn-out
4-6x
EBITDA multiple
€2M-€10M
Enterprise value
3-4x
Debt / EBITDA
5-7 years
Exit horizon
30-50%
Capital contributed by the searcher and the investors.
30-50%
Bank or alternative debt.
10-30%
Deferred payment to the seller.
5-20%
Payment conditional on results.
The ecosystem
Spain has consolidated its position as Europe's main search fund hub, with a mature ecosystem combining talent, capital and opportunities — which is exactly why international searchers and investors look at the Spanish mid-market.
100+
Active search funds
In Spain and Portugal
€500M+
Capital deployed
Over the last 5 years
60+
Acquisitions
Successfully completed
#1
In Europe
By number of transactions
IESE Business School
Barcelona / Madrid · Pioneer of the model in Europe
IE Business School
Madrid · Entrepreneurship-through-acquisition programme
ESADE
Barcelona · Investor ecosystem
Advanced guide · For searchers
Sourcing is the most critical and longest phase of the process: identifying, contacting and cultivating relationships with owners who might sell. Unlike private equity, a search fund builds its own pipeline through direct contact, and volume matters: of every 100 contacts, only 2-5 show initial interest.
01
Identify companies that fit the thesis and contact the owner directly, using data from SABI, Orbis, Axesor/Informa, LinkedIn and the commercial registries. It is the most common channel.
02
Boutiques, financial advisors and law firms that work with sellers. They charge a fee, but intermediated deals tend to close faster because the seller is already prepared to sell.
03
Business school alumni, former mentors, SME accountants and tax advisors, corporate bankers and wealth managers.
04
Trade fairs, business associations, chambers of commerce and business clubs where founders close to retirement gather.
| Stage | Typical volume | % conversion |
|---|---|---|
| Companies identified | 1,000 - 2,000 | 100% |
| Contacts sent | 500 - 1,000 | 50% |
| Replies received | 50 - 100 | 10% |
| Meetings held | 20 - 40 | 40% |
| NDAs signed | 10 - 20 | 50% |
| LOIs sent | 2 - 5 | 20% |
| Closings | 1 | 30-50% |
Ratios vary by sector, geography and investment thesis. What matters is measuring your own and optimising: the first contact must convey professionalism, respect for the owner's legacy and a clear proposal, and persistent but respectful follow-up is what closes most deals.
Advanced guide · Valuation
Valuing SMEs has its own particularities: small companies where adjustments carry weight, sometimes unaudited accounts, owner dependence and an illiquid market. The dominant method is a multiple on normalised EBITDA.
| EBITDA size | Typical multiple | Comment |
|---|---|---|
| < €500K | 2.5x - 3.5x | Small businesses, high risk |
| €500K - €1M | 3x - 4x | Sweet spot of traditional searches |
| €1M - €2M | 4x - 5x | More solid companies |
| €2M - €5M | 4.5x - 6x | Competition with small private equity |
| > €5M | 5x - 7x+ | Traditional private equity territory |
Multiples rise with sustained growth, high margins, low customer concentration, an independent management team and barriers to entry. Revenue multiples (0.5x-1.5x in traditional businesses, more in SaaS with recurrence) are used when EBITDA is not representative, and DCF only as a sanity check: in SMEs, small changes in assumptions produce ranges that are too wide.
The reported EBITDA of a family-owned SME rarely reflects real profitability under professional management. It is adjusted upwards (above-market owner salary, personal expenses, relatives on payroll without a real role) and downwards (below-market rents, non-recurring income, subsidies that will not continue):
| Item | Amount (€) |
|---|---|
| Reported EBITDA | 800,000 |
| + Owner salary above market (€200K → €120K market rate) | +80,000 |
| + Personal car | +25,000 |
| + Personal travel | +15,000 |
| - Above-market rent on owner's property | -30,000 |
| - One-off income (machinery sale) | -50,000 |
| Normalised EBITDA | 840,000 |
A QoE validates the quality and sustainability of EBITDA before closing. For deals above €2M it is worth commissioning from a specialised firm. What it reviews:
Need a value reference? Use our valuation calculator or see the valuations service.
Advanced guide · Negotiation
You are buying somebody's life's work. Most sellers are driven by retirement, business fatigue or the lack of succession, and their concerns go far beyond price: the future of their employees, the continuity of the brand, confidentiality and their own role in the transition.
Golden rule for the first meeting: listen more than you talk, ask about the history of the business and do not mention price. Never criticise the owner's decisions, even if you see inefficiencies.
Price is only part of the deal: structure can matter just as much. A seller asking €5M may accept €4.5M with more certainty at closing, or €4M at closing plus €1.5M in earn-out if they trust the business.
The seller 'lends' part of the price, payable over 2-4 years, usually subordinated to senior debt. It signals confidence in the business.
Example: €3M at closing + €1M vendor note over 4 years.
Payment conditional on future results. Aligns interests, but can create conflict if poorly defined.
Example: An additional €500K if EBITDA exceeds €1.2M in years 1-2.
The seller keeps a minority stake, useful when they want to share in future upside.
Example: 15% of the equity retained with a put option at 5 years.
A temporary holdback to cover contingencies discovered after closing, typically for 12-18 months.
Example: €300K in escrow released if there are no claims within 12 months.
Advanced guide · Operations
The acquisition is only the beginning. The first 100 days set the tone of the new CEO's leadership: they are for listening, diagnosing and earning credibility, not for revolution. The 80/20 rule: keep 80% as it is and change only the 20% with clear impact and team consensus.
All-hands meeting with a message of continuity and respect for the legacy, the seller backing the transition, and communication to key customers and suppliers.
One-on-one meetings with the key team and operational immersion in every area. Still no changes.
In-depth review of finance, sales, operations, team, systems and legal standing.
Implement 3-5 quick wins, regular team meetings, KPIs and reporting, and formalise processes that lived only in the owner's head.
The seller usually stays on for 6 to 12 months at a market salary during the transition. Knowledge transfer should document key customer and supplier relationships, critical employees, unwritten processes and past problems with their solutions.
| Phase | Duration | Seller's role |
|---|---|---|
| Intensive | 1-3 months | Full-time, active knowledge transfer |
| Reduced | 3-6 months | Part-time, available for questions |
| Advisory | 6-12 months | On demand, for specific matters |
Dictionary
The key terms of mergers and acquisitions explained clearly, with practical examples where they help.
Going deeper
The international sources every searcher and investor in the ecosystem consults.
Stanford GSB
Stanford's reference guide to the model. Essential reading.
IESE Business School
Periodic study with international performance data and trends.
Podcast
Interviews with searchers about their acquisition journeys.
Podcast
Stories of entrepreneurs who have bought small companies.
Frequently asked questions
A search fund is led by an individual entrepreneur who finds, acquires and operates a single company, with a personal commitment of 5-7 years as CEO. Private equity manages multiple investments through professional managers who are not involved in day-to-day operations.
The typical process takes 6 to 12 months from first contact to closing: initial valuation, negotiation of terms, due diligence (4-8 weeks) and legal closing.
Typically 70-90% is paid at closing. The remainder can be structured as a vendor note (2-5 years) or an earn-out linked to future results.
Search funds usually retain the existing team, because they value the operating knowledge. The new CEO works alongside the team during the transition, which can last 6-12 months.
It is not mandatory, but a 6-12 month transition period is recommended to transfer knowledge and key relationships with customers and suppliers.
Search funds typically pay between 4x and 7x EBITDA for profitable companies. The valuation depends on the sector, growth, founder dependence and team quality.
The ideal profile: revenue of €2M-€15M, positive EBITDA (at least €500K), a diversified customer base, a non-cyclical sector and low founder dependence.
Market-standard ones: representations on financial statements, current contracts, absence of litigation and tax compliance. They usually run for 18-24 months, capped at 10-20% of the price.
Less common, but possible. Some sellers keep 10-20% of the equity to share in future growth (equity rollover), which also aligns interests with the new owner.
The LOI usually includes financing conditions. If the funds are not raised, the deal does not close and there is no penalty for the seller, although time is lost.
Capittal connects Spanish companies with verified search funds: valuation, confidential matching, negotiation and closing. If you are a searcher, register to access pre-screened companies that match your criteria.